An otherwise quiet week came to a jarring conclusion -- and may be a perfect lead-in to another week of potentially discouraging economic indicators.
The most significant data in the week just ended came on Thursday and Friday. On Thursday, the Labor Department reported initial claims for unemployment insurance jumped past 500,000, the first time above that level since 2001 and only the second time since 1992. On Friday, the Commerce Department reported that total retail sales tumbled 2.8% in October, the steepest month-to-month decline in retail sales since the Department of Commerce data series began in 1983.
Those two data points reinforced, or were reinforced by, preliminary November results of the University of Michigan’s consumer sentiment survey, which barely budged from October lows.
The retail data may require an asterisk. Commerce reports retail sales nominally -- that is, without adjusting for inflation. As a result, price changes, not preferences, show up in the report. Specifically, total retail sales dropped about $10.4 billion from September to October but gasoline sales themselves fell $5.5 billion a drop of about 13%. The average price of a gallon of gasoline fell almost 18% from September to October.
Without the gasoline effect, retail sales still would have declined $4.8 billion, or 1.5%, from September to October, the steepest plunge in sales excluding gasoline since August 2005. That still betrays weakness in the economy, which will likely show up in the report on fourth-quarter Gross Domestic Product. Personal consumption represents about 70% of GDP and retail sales (including gasoline) about 40% of personal consumption, so the influence can’t be overstated. Indeed, the weak retail sales report could have further-reaching impact among retailers who have already reduced their expectations for holiday sales.
Those lower forecasts mean reduced hiring for the holiday season, which will do little to relieve already intense labor market pressures.
Layoff announcements have accelerated in recent weeks, which suggests the 500,000-plus report is not aberrational and could produce a still higher unemployment rate. Job concerns will affect continue to affect consumer sentiment and retail sales, even though price pressures may ease.
And, the upcoming week will include a hard look at prices fanning concerns not of inflation but of deflation which carries with it a unique set of problems and fewer. To combat inflation, a central bank could adjust interest rates upward -- without limit -- to slow economic activity, reducing inflationary pressures. In an already slow economy, with prices already falling, there is a bottom to interest rates to which the opposite remedies do not apply.
The week will also offer more sobering news about housing, specifically efforts by builders to address an oversupply of new homes. One hint: pay attention not to the level of housing permits and starts, but the number of new homes completed. In September (the last data month), builders completed 837,000 new homes -- but sold only 464,000.
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, November 17Empire State Index (Nov)October actual: -24.6 DOWN 17.2November consensus: -21.1Industrial Production Index (Oct)September actual: 107.3 DOWN 3.1October consensus: UP 0.2%Capacity Utilization Rate (Oct)September actual: 76.4 DOWN 2.3October consensus: 76.5Kansas City Fed President Thomas Hoenig speaks on regulationTuesday, November 18Producer Price Index (Oct)Finished Goods all items (M-M / Y-Y)September actual: DOWN 0.4% / 8.7%October consensus: DOWN 1.2%Finished Goods core items (M-M / Y-Y)September actual: UP 0.4% / 4.1%October consensus: UP 0.1%Housing Market Index (Nov)October actual: 14 DOWN 3November consensus: 14Wednesday, November 19MBA Application Index (Week ended: November 14)Week Ended November 7: 425.0, UP 11.9%Four-week moving average: 435.3, DOWN 4.5%No November 7 consensusConsumer Price Index (Oct)All items (M-M / Y-Y)September actual: 0.0% / 4.9%October consensus: DOWN 0.5%Core items (M-M/ Y-Y)September actual: UP 0.1% / 2.5%October consensus: UP 0.2%Housing Permits(Oct)September actual: DOWN 6.1%October consensus: 807,000, UP 2.7%Housing Starts (Oct)September actual: DOWN 6.3%October consensus: 815,000, DOWN 0.2%FOMC MinutesFOMC Meetings of October 8 (unscheduled) and October 28-29Federal Reserve Vice Chairman Donald Kohn speaks on subprime crisisRichmond Fed President Jeffrey Lacker speaks on subprime crisisThursday, November 20Unemployment Insurance Claims (Week Ended November 15)November 8 Actual: 516,000 UP 32,000November 15 Consensus: 485,000Four-week moving average: 491,000, DOWN 13,250No November 15 consensusLeading Economic Indicators (Oct)September actual: 100.6 UP 0.3October consensus: DOWN 0.5Philadelphia Fed Index (Nov)October actual: -37.5 DOWN 41.3November consensus: -32.0St. Louis Fed President James Bullard speaks on the EconomyFriday, November 21No Data ReleasesPhiladelphia Fed President Charles Plosser speaks on the EconomyChicago Fed President Charles Evans speaks on the Economy
Positive Data Not Enough to Stop Market Freefall
Home sales continue to slide
Some cut retirement savings back
