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Thursday, September 13, 2012

Hmm, Thursday Again

Fed Thursday, which overshadows even burning embassies. 

Initial claims - headline is 382K, up from last week's original 365K, revised to 367K.  I'm not saying this is invalid, but this is the time of the year when seasonal adjustments increase the headline, and actual claims came in below 300K this week, which is pretty good. Also seasonally adjusted continuing claims are dropping, which is good. The four-week moving average for initial claims is 375K, which is not bad. 

Of more economic concern is
PPI, which comes in at 1.7% on the month. Hefty. The Fed is probably going to give that a boost today. The MoM change was 5.8% for crude goods and 1.1%. The 12-month finished is now 2%. Last month's ex food and energy was 0.4 and this month's is 0.2, but somehow many producers will have to pass these costs along. The last three months of finished food are 0.5, 0.5 and 0.9 this month. Energy was up 6.4% this month. Just this month. I'm sure any resemblance to any recent unfortunate economic collapse is purely coincidental, huh?


Ah, there's nothing like soaring commodity prices at the beginning of a recession to waft the sweet autumnal smell of burning GDP growth through the econatmosphere. Some might think that easier interest rates have something to do with the usual recession spike for prices. It's more than that, however. Other assets get less plausible. Thursday's child has far to go. 

From the PPI release, a demonstration of why job creation is so slack:
Trade industries: The Producer Price Index for the net output of total trade industries declined 1.3 percent in August, the largest decrease since a 1.4-percent drop in June 2010. (Trade indexes measure changes in margins received by wholesalers and retailers.) Leading the August decline, margins received by merchant wholesalers of durable goods moved down 1.7 percent. Lower margins received by gasoline stations and department stores also contributed to the decrease in the total trade industries index. 

Transportation and warehousing industries: The Producer Price Index for the net output of transportation and warehousing industries moved up 0.4 percent in August following a 0.4- percent decline in July. Over half of this advance can be attributed to a 1.3-percent rise in prices received by the scheduled passenger air transportation industry. Higher prices received by the truck transportation industry group and by the general warehousing and storage industry also were factors in the increase in the transportation and warehousing industries index. 

Traditional service industries: The Producer Price Index for the net output of total traditional service industries advanced 0.6 percent in August after no change in the prior month. Leading this rise, prices received by the industry group for hospitals climbed 1.6 percent. Higher prices received by the industry groups for depository credit intermediation and for securities, commodity contracts, and related financial investment services also contributed to the increase in the total traditional service industries index. 
Margin compression! 

Comments:
The worse it is the better for stocks. It has been that way for some time and I don't see why it can't continue for years.
 
MOM (& Joseph Constable),

For what it is worth, here's my take on it.

September 13, 2012
Extreme Initial Claims Danger v.14

And finally, how long will the party last this time? I guess it all depends on the positioning of the smoke and mirrors relative to the dogs and ponies. If done properly, a nearly infinite supply of show animals might appear. Probably best to keep in mind that many of them are an illusion though. But what's new?
 
But will that make the economy better, Joseph? One of the main curative mechanisms for the 2008 crash was the collapse of prices.

The Fed can pump on asset prices, but it will only shrink the flow of money circulating in the bottom 65% of the economy - which is hardly likely to stimulate the whole shebang.
 
MOM,

The Fed can pump on asset prices, but it will only shrink the flow of money circulating in the bottom 65% of the economy - which is hardly likely to stimulate the whole shebang.

That's exactly how I see it. Sigh.
 
re: The Fed can pump on asset prices, but it will only shrink the flow of money circulating in the bottom 65% of the economy - which is hardly likely to stimulate the whole shebang.

Unfortunately, Bennie and the Ink-Jets seem to see that as a feature and not a bug! With enough printing, sooner or later, labor just has to be "cheap enough" compared to Hard Assets and Financial Assets. Alas, James Tobin isn't around to write about it. They seem to think the '70s were a model of success.

Heaven help us...

Anon PA
 
Love the DC cynicism - jack up the minimum wage to get votes one term, jack up the money printing the next term to get votes on the other end.

Tilting at treadmills, or something.
 
The only thing that will help the economy for real is structural reform. That has to be done by congress. With the FED doing their monetary stimulus, it disincentivizes congress to do what is needed to be done. The dual mandate has ruined the FED. They easy too far and for too long in order to spur employment. Employment should not be their job. Hubert Humphrey in the Humphrey-Hawkins Act of 1978 turned the FED into the money tree.
 
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