After two weeks facing down Fannie Mae, Freddie Mac and Lehman Brothers, Federal Reserve Chairman Ben Bernanke may look forward to dealing with mundane matters such as inflation and a slowing economy. He gets his chance in the upcoming week when the Federal Open Market Committee meets Tuesday, its penultimate meeting before Election Day.
The data Bernanke and company will look at when they convene are daunting, exacerbated by confusing and somewhat contradictory numbers in the last week. Friday was a perfect illustration, with reports showing consumers saying they are confident, but not acting that way. Retail sales fell sharply as consumer confidence rebounded. The retail-sales numbers are probably a better reflection of the economy, on the heels of last Monday’s report that consumer borrowing growth has slowed.
While the University of Michigan survey was upbeat--the sharpest month-to-month gain since January 2004--at 73.1, the index was well below levels during the 1990-91 and 2001 recessions. And, because the survey is done by telephone, it misses people who do not have landlines, generally people under 40 who are more likely to have a higher unemployment rate, more likely to earn less than $15,000 a year and less likely to earn more than $75,000--in other words, more likely to be pessimistic.
The weak retail sales numbers suggest a concern for the overall economy because retail sales are about 40% of consumer spending, which is about 70% of the entire economy. For the first two months of the third quarter--July and August--retail sales are down a cumulative 0.8%.
It is that concern that will carry into the FOMC meeting--but there are others, some less publicized. According to a survey, 53% of Americans over 60 said today's economic conditions are worse than those they have experienced in the past, even though unemployment and inflation rates have been higher within the last 30 years. That’s significant from a population that has lived through 11 recessions--at least six of which occurred during their adulthood (since 1969).
The survey from the MetLife Mature Market Institute reported an overwhelming majority of this group is feeling the pinch in today's current economy and it has affected the way they spend their money--but not their plans for retirement.
Data from the most recent employment report showed an increasing number of individuals aged 55 or over are continuing to work (some of that increase may be due to people turning 55 from one month to the next). The number of people aged 55-plus who are working has increased in 10 of the last 12 months, and represents about 17.4% of the working population, up from 16.9% one year earlier and 16.4% one year before that.
The other concern for the FOMC Tuesday will be inflation: though the Bureau of Labor Statistics reported a decline wholesale prices led a by drop in energy costs, BLS data also showed a nagging, steady climb in core wholesale prices. That means the FOMC will continue to have to balance its two mandates: price stability and maximum sustainable economic growth (usually denominated by the unemployment rate). The simple measure of the two is the “misery index” created by economist Arthur Okun who chaired the Council of Economic Advisers in 1968-69. The index is the sum of unemployment and inflation rates. The index is 11.4, its highest level since March 2004.
Just before the announcement of the FOMC’s decision Tuesday, BLS will report consumer price index inflation for August. Beyond perhaps affecting the FOMC decision, the BLS report will be the second report for the third quarter, the quarter which determines the coast of living increase for Social Security recipients. Total CPI, tracking the wholesale price index, is expected to have fallen in August while core CPI, excluding food and energy probably increased--possibly beyond the “comfort zone” for the FOMC.
Data later in the week are likely to reconfirm the extended housing slowdown with a continued downturn in single-family housing permits and starts. Any increase in total permits and starts will be driven by multi-family activity which only underscores concerns about the single family market.
The Federal Reserve Thursday issues its quarterly “Flow of Funds” report, one of the more comprehensive sets of data. Of note will be movement in household net worth which has fallen for two straight quarters.
Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.
Monday, September 15Empire State Index (September)August actual: 2.8 UP 7.7September consensus: 4.0Industrial Production (August)July actual: 111.8 +0.2%August consensus: 111. 5 - 0.3%Capacity Utilization (August)July actual: 79.9% UP 0.1August consensus: 79.7%Tuesday, September 16Consumer Price Index (August)All-item M-M / Y-YJuly actual: 0.8% / 5.6%August consensus: 0.0% / 5.5%Core M-M / Y-YJuly actual: 0.3% / 2.5%August consensus: 0.2% / 2.6%Housing Market Index (September)August actual: 16 UNCHANGEDSeptember consensus: 17Federal Open Market Committee Fed Funds RateAugust 5 actual: 2.00% (unchanged)September 16 consensus: 2.00% (unchanged)Wednesday, September 17MBA Application Index (Week ended: September 12)Week Ended September 5: 496.2, UP 9.5%Four-week moving average: 447.5, UP4.1%No September 12 consensusHousing Permits (August)July actual: 937,000 (Down 17.7%)August consensus: 925,000 (Down 1.3%)Housing Starts (August)July actual: 965,000August consensus: 955,000 (Down 1.0%)Thursday, September 18Unemployment Insurance Claims (Week Ended SeptemberSeptember 6 Actual: 445,000 DOWN 6,000September 13 Consensus: 440,000Four-week moving average: 440,000, UP 250No September 13 consensusLeading Economic Indicators (August)July actual: -0.7%August consensus: -0.1%Philadelphia Fed Index (September)August actual: -12.7 (UP 3.6)September consensus: -12.0 (UP 0.7)Flow of Funds (2Q 2008)Household net worth 1Q actual: $55.97 Trillion (DOWN 2.9% Q-Q)Household net worth No 2Q consensusFriday, September 19No Data ReportsChicago Fed President Charles Evans (Alternate – Non-voting member of FOMC) speaks at the Swiss Central Bank on the economic outlookMarket SnapshotIndicesMoversLoan CenterDOW---
