Back from NYC

My apologies for my lack of posting over the past three weeks. I was in the New York City area for the holidays plus some vacation. I got back to Bellevue, WA late Tuesday evening, but I am still adjusting and trying to catch up even now. Relaxation can be so exhausting!

You wouldn't have guessed that the economy was "weak" by looking at consumer activity in New York City. Plenty of people on the streets and in stores and restaurants. Same here in Bellevue, WA.

But... there were some recent economic reports that were in fact weak:

• The ECRI Weekly Leading Index six-month smoothed growth rate has been modestly negative for 12 consecutive weeks and this past week dropped down to -1.8%, which is modestly below the -1.5% threshold where we start to get a little concerned. ECRI says that "With WLI growth at its worst since just before the Iraq War, U.S. economic growth prospects have deteriorated further, yet fall short of a recession forecast."
• Construction spending declined in October. The good news is that non-residential construction spending continues to rise as it has for the past year, but residential construction spending had a bigger decline in October.
• Real Disposable Personal Income declined slightly (-0.14%) in October, but personal spending continues to grow.
• Unemployment Insurance Jobless Claims have risen modestly, but are still rather tame.

None of this is yet negative enough to suggest that a true recession is likely, but is worth watching a bit more closely.

OTOH, that kind of weak data plus the daily drumbeat of the so-called "credit crunch" means that it is highly likely that the Fed will cut interest rates by a quarter-point again at the FOMC meeting on Tuesday, December 11, 2007.

It is interesting that the Fidelity Money Market Fund (SPRXX) has a 7-day yield (4.82%) which is substantially higher than the Fed's fed funds target rate of 4.50%.

Both crude oil and the euro have lost their recent "meteoric" upwards momentum. Gasoline prices have already started to decline, which should inspire a little more consumer spending.

-- Jack Krupansky