Tipping Point for Wages

The employment cost index rose 0.7% in the third quarter, more than expected after rebounding from the doldrums in the second quarter. The index rose 2.3% from a year ago on the heels of slightly stronger wage growth; benefit costs for employers actually decelerated from a year ago. Read More »


Frightening Consumer Spending Data

Personal consumer outlays dropped 0.2% in September from August, reinforcing the negative read that the recent retail sales report provided for us. A shortfall in retail sales in September was one of the factors that triggered a selloff in the stock market earlier this month when traders feared that the U.S. consumer couldn’t play the Atlas it once did for the world . Personal income also came in slightly weaker than estimates, although the shortfall was not as bad as we saw in consumer spending. Personal income rose only 0.2% in September, 0.1% less than market expectations. The silver lining was an upward revision Read More »


Real GDP Holds Strong

Real GDP rose 3.5% in the third quarter after rebounding at a 4.6% pace in the second quarter. We have been trying to regain ground lost to unusually harsh winter weather in the first quarter of the year when real GDP declined by 2.1%. Most components of real GDP decelerated after the catch-up we saw in the second quarter. That includes consumer spending, business investment and residential construction activity; a drawdown in inventories also occurred.

A sharp narrowing of the trade deficit and a surge in defense spending were the only categories that surprised to the upside. Read More »


Fed Offers Reassurance After Ending QE

The Federal Open Market Committee (FOMC) voted  today to end the large-scale asset purchase program  (also known as “quantitative easing,” or QE). FOMC members stated that they will maintain the size of the Federal Reserve’s balance sheet at the current $4.4 trillion level by replacing mortgage-backed securities and maturing Treasury bonds until the Fed starts to raise rates in 2015. The Fed left the window open a crack for additional quantitative easing if necessary, Read More »


Durable Goods Orders Disappoint

Durable goods orders fell 1.3% in September, well below expectations. Orders were also revised down slightly for the month of August. The decline in new orders was fairly broad-based, with the exception of metals, electronics and appliances. It is important to note, however, that the drop in orders followed a jump two months ago in July, which was distorted by a 315% surge in orders for Boeing aircraft. Read More »


European Bank Stress Tests: Just One Step in the Right Direction

The European Central Bank (ECB)  has announced the results of the stress test exercise over the banking system. Out of 130 banks scrutinized 25 failed, revealing capital shortfalls for a total of about 25 billion euros. Out of these 25 banks, nine are Italian, three Greek and three Cypriot.

In several cases, plans were already in place to bridge the capital gaps. Once the additional measures were taken into account, capital shortfalls shrank to a total  of 9.5 billion euros. Thirteen banks were named as still problematic Read More »


New Home Sales Flatline

New home sales rose an almost imperceptible 0.2% in September, after being revised down sharply for the month of August. While new home sales are a notoriously volatile data series, estimated from a very small sample and subject to large revisions, sales have continued to trend modestly higher Read More »


Inflation Still Too Low

The Consumer Price Index (CPI) edged up 0.1% in September, after falling slightly the month prior. Increases in food prices tempered the drag from plummeting energy prices. This raises issues for consumers at the grocery store, as they will likely divert some of the money they are saving at the pump to deal with higher prices for proteins, like meat. The other option is to substitute lower-cost rice and pasta, which all too many families are already doing as they struggle with constrained wage gains. Indeed, real average hourly earnings actually contracted Read More »


Primer for October 29 FOMC Meeting

The Federal Open Market Committee (FOMC) is slated to wrap up the large-scale asset purchase program (aka “QE3”) on October 29 with as little fanfare as possible. Federal Reserve officials believe they have prepared financial markets for this change and, despite recent market volatility, can still end the current purchase program quietly.

The statement at the end of next week’s meeting will acknowledge that the economy has improved enough to discontinue further expansions to the Fed’s $4.4 trillion balance sheet for the moment. However, the Fed is expected to maintain the current size of the balance sheet by backfilling, Read More »


Home Sales Edge Higher

Existing home sales edged higher in September after losing ground in August. We are still trying to regain ground lost, however, in the wake of last year’s “taper tantrum” over Federal Reserve talk of ending its asset purchasing program; that pulled a lot of sales into the third quarter of 2013. Hence, sales remain below the highs hit a year ago in September, despite markedly lower mortgage rates today.

All-cash buyers remained abundant but investors appear to be losing interest in a market with fewer foreclosures Read More »