The domestic economy is weak, and the financial markets are nervous.
The Federal Reserve will meet this week to decide how much lower interest rates should go. But they didn't wait before announcing to help troubled financial firms. The Federal Reserve announced a willingness to buy as much as $200 billion in very short-term obligations, with the ECB and other central banks also pledging some help. Regardless of whether $200 billion is the right amount or not, what's crystal clear is an acknowledgement that lower interest rates alone are not enough to help unfreeze credit markets. And a weak economy cannot start to gather upward momentum without a functioning credit market. The big question isn't whether this is a recession or not. Rather, it's whether this is weak growth or recession, how bad it will get and how long before it starts to get better. How well the Fed's latest attempt to help financial markets function normally will help resolve some of these questions.
Monday, March 17
9:15 AM Industrial Production and Capacity Utilization (Federal Reserve Board)
Demand is soft and business (especially at the wholesale level) feels the need to reduce inventory (and carrying charges). Therefore, industrial production likely edged lower in February. With auto sales weak, auto output likely fell more than minimally. Output related to home building or home appliances probably continued to decline.
Tuesday, March 18
8:30 AM Producer Price Indexes (Bureau of Labor Statistics)
The inflation problem has been centered on pressure from expensive labor. But material costs (especially for metals and chemicals) are also edging a little higher. Another monthly rise of 0.3 percent (overall PPI and "core" which excludes food & energy) probably occurred in February. What's more, that could be the story on material costs through the spring. Put another way, a slower economy is not slowing inflationary pressure (especially in terms of labor costs).
8:30 AM Housing Starts and Building Permits (Bureau of the Census)
Home building is weak and may have weakened a little further in February, with both housing starts and permits to build edging still lower (from already two-decade lows). The bottom to the housing mess is not yet at hand.
Thursday, March 20
10:00 AM Composite Indexes of Leading, Coincident and Lagging Indicators (The Conference Board)
The Leading Economic Index was soft all through 2007, signaling that growth would slow. The Coincident Economic Index, which tells us where we are right now, has been rising minimally. Did the Leading Economic Index continue to fall in February? Did the Coincident Index, perhaps the more important number right now, finally show a decline?
By the End of the Week
The U.S. economy is slow and might even turn weaker. Domestic weakness and financial turmoil are taking their toll elsewhere. Yes, Japan's economy had a robust quarter. But surveys of consumer or investor sentiment abroad show growing concern that problems in financial markets in general, and credit conditions in particular, could exact a toll on overall economic activity. Meanwhile, oil went to nearly $110/bbl while stock markets continued to move a little lower. Stocks generally lost about 5% this past month, paced by declines in New York and Tokyo. That's only half the decline year to date. Unless growth prospects improve this spring, there is little reason to anticipate a rally. That, together with questions about access to financing, could hurt investment in general, potentially weakening economic activity. In short, March hasn't been a good month. April might not be much better.
