September 11th, 2013 9:20 AM by Mel Samick
In the reality of the new world, there is still a search for a new technology that would propel future sustainable economic growth. Meanwhile, policy appears to be a stronger driver of the economy than the private sector. Macro-economics these days clearly dominates over micro-. The Beige Book report of economic conditions, released two weeks prior to each of the eight FOMC meetings each year, was quite positive in supporting the talks about the Fed's next moves.
While investors keep speculating about timing and size of the first steps of the Fed's stimulus withdrawal, Paul Krugman (the Nobel winning economist) -- in his editorial on the New York Times opinion pages -- argues for greater government spending as an ingredient necessary to pull the country out of stagnation. According to Krugman, much more significant spending, paired with prolonged tax cuts, was required to give our economy a true charge. As a result of the present course of action, he says, the economic strength of generations was undermined.
However, Krugman's propositions would be hard to implement given the budgetary constraints. His ideas, at the same time, are in line with the new view on a job market situation. Unemployment claims were at the lower-than-previously and lower-than-expected levels this past week, supported by the lower-than expected unemployment rate of 7.3 percent reported for August. At the same time, a number of payrolls were added, but while this grew month-over-month, it still disappointingly fell short of expectations. Productivity has increased in the second quarter of this year and unit labor costs remained unchanged, signaling that employers are still focused on extracting more from the existing labor force.
Ultimately, there is candid talk in the news about the nature of an unemployment rate as a measure of the employment situation. The unemployment rate counts only the heads of members of labor force, looking for a job; those, discouraged from the get-go or after looking for a while, remain unaccounted. While the unemployment rate eased during most recent times, the labor force participation rates are at pre-Apple times levels.
The PMI manufacturing index, a leading indicator of the future private sector economic activities, missed expectations in July and signaled slowing economic activities, while the ISM Manufacturing Index, a measure of the supply side, beat expectations by far and posted at the higher end of consensus range in August. Factory Orders in July declined less than expected and the ISM Non-Manufacturing Index reported a strong level, above the consensus range for August, setting hope that the weakness period is behind us. Construction Spending was on a rise in July in both non-residential and residential sectors. The refinancing activity is edging up again, while purchases continue to slow down, according to the recent MBA Purchase Applications data.
There are only few significant economic readings coming out this week. Jobless Claims and Import and Export Prices are scheduled for release on Thursday. The Producer Price Index, Retail Sales, Consumer Sentiment and Business Inventories will follow on Friday. President Obama's national address on Syria is expected on Tuesday.
Information Provided by NYCB Capital Markets