Financial Ambiguity

The past week has brought about a mixed bag of economic data that as a whole points towards… umm… who knows. With a softening of commodity prices, inflationary indicators such as CPI and PPI should begin to moderate in the months ahead (as long as commodities don’t spike back up again). This in turn should help propel manufacturing from the cost side giving a needed boost to a battered industry. Although ISM and factory orders have held up amongst a broadly soft economic picture (as further indicated by the Fed’s latest beige book), they should continue to show resilience even in the face of a slowdown in the major overseas economies. The export industry has propped up the US economy, as the dollar’s 7-year downward spiral apparently doesn’t systemically hurt everyone. Just because the dollar is again regaining traction, don’t expect it to have an immediate detrimental effect on exports; however, if the growth of the BRIC (Brazil, Russia, India and China) countries falls off a cliff, as the eurozone seems to be at this time, US industries focused primarily on exports may weaken substantially. In the face of all this uncertainty, the labour market will stand out as a key indicator of future economic growth. Although the consumer has held up remarkably amidst skyrocketing energy prices and plummeting home values, he may begin to retrench if job losses continue to accelerate. Worldwide easy money policies have caused these extreme moves, and it is tighter money in the form of wider mortgage and credit spreads that will choke it out. If the labour market can hold it’s own as housing begins to turn the corner, the economy may skirt by with only the scratches of stagnant growth (which is better than a recession). But what will be the leaders of the looming recovery? Maybe with the impending bailout of the GSEs, large financial institutions may take over the MBS market and start a new wave of funky credit derivative products (one can only hope)… but for my money, the eventual market recovery will be lead by new technology and energy companies focused on solving the most pressing global and environmental problems of humanity. Luckily for them, alternative energy is also a hot political topic that is likely to get government funding under any administration.

I apologize to the faithful contingent of RMEconomics readers out there to have taken a 2 week posting hiatus; I am currently on the hunt for a new home... and hope to have it resolved ASAP. If your life has been severely impacted by the drought of intellectual financial commentary caused by my absence, please feel free to email me and I will send you a free RMEconomics Screen Print T-shirt (limited one per reader).