Green Shoots: Too Small, Too Far Apart

There are indeed visible “green shoots” in the economy, but they are too far apart and small in size to really get excited about. Last week saw manufacturing activity in the New York area and industrial production nationwide contract by less than consensus expectations. The rate of decline was also slower than in the past few months – but they still registered a contraction, albeit at a slower pace that before.

The latest inflation data has also been tame. The CPI did not really make the news as consumer prices overall (seasonally adjusted) showed no change from March to April. However, if you look at the core index - excluding food and energy prices, which tend to be volatile—it rose 0.3 percent. On a year-over-year basis, the core index has risen nearly 2 percent –a far cry from “no-inflation" or even deflation concerns.

Here’s what interesting, though: the core index excludes energy and food. The energy index declined for the second straight month, falling 2.4 percent after declining 3 percent in March. The indexes for motor fuel, fuel oil, natural gas, and electricity all declined in April. The food index declined as well, falling 0.2 percent in April after a 0.1 percent decrease in March.

We can’t expect the energy component of all prices to continue to decline as oil – and gasoline – have been on the tear. This is why TIPS, or inflation-protected securities, are moving up. Crude oil is again trading near $60 per barrel, so it seems to us that with even modest economic growth, energy and food prices could skyrocket and inflation could hit us fast and hard.

The newest reading on the Reuters/University of Michigan index of consumer sentiment showed an increase – the measure stood at an eight-month high. This improvement could prove a fickle sign if oil keeps rising and employment situation does not improve.

The unexpected decline of housing starts is also a warning sign – this is one measure whose deterioration just would not stop.

Low interest rates, which are critical for keeping the mortgage rates at or near their lows, are threatened by the oversupply of Treasurys – and without the revival of the consumer, both for the housing market and retail, we’re still in trouble.

Comments

[User 353732]

For 8 weeks now the Washington Dc-Wall St-MSM axis of deceit has been proclaiming " Things are getting better because they are getting worse more slowly".
What is astonishing is not the brazen assult on truth and reason(we expect that) but the fact that so many of our fellow Americans actually accept the statement without examining the actual words.
This is like telling someone lying on the street after a bad accident, bleeding and torn, that the rate of blood loss has slowed so all is well: just get your confidence back, get up and go home.
As Americans will perhaps discover in the months ahead there is a huge difference between honest optimism and wilful deceit.

2009 May 21 06:28 AM

[sieraromero]

The market has been and is continueing to be manipulated for the percieved "good of the country". They are trying to contain the damage to be as the least ddestructive possible. States, counties-parrishes, and townships are struggling at the governmental level. Real estate they definatly don't want to go down any further! Pensions are now starting to get hit as many who were overfunded in the previous years are being put on the endangered and critical lists. That cut in incomes to millions of americans would be devastating to them and the general economy! I personaly hope they can contain this mess in the makeing, but I do not think in the intermediate term that they will be able to do so. Good Luck to you all!

2009 May 21 09:13 AM

[FDNY RET]

Standing outside and proclaiming "It's raining"!
Is undeserving of comment.

2009 May 21 12:47 PM

[AndrewBaker]

Economic manipulation does not mend, repair or put anything right: it simply paints over the cracks, breaks and holes in the fabric. The cynical way in which da boyz in power are creating a false picture of the real economy is astounding and not what I would ever expect from a US or democratic western government, yet the UK and Europe are in cahoots with the US in calling on people to see green shoots that don't exist: Hans Christian Anderson in writing The Emperor's New Clothes fairy story, would have been proud. Where is the innocent child who will proclaim for all to hear that the King is in the altogether?

2009 May 21 02:27 PM

[henarl]

I believe the "green shoots" are just the trillions of dollars that the Fed is currently printing. Unfortunately these "green shoots" are not growing in value and positive propaganda will not be sufficient fertilizer to turn them into a harvestable crop.

2009 May 21 02:59 PM

[jambo]

On May 21 02:27 PM AndrewBaker wrote:

Where is the innocent
> child who will proclaim for all to hear that the King is in the altogether?

Well, that would be up to us it seems. At least while we are still free to comment. For my part; sumbitch is nekkid as a jaybird... Others' mileage may vary. Those shoots were painted green by the ink in the treasury mint.

2009 May 21 09:21 PM

[StreetMedic]

In my line of work, we say, "All bleeding eventually stops." This is true for the economy, too.

> This is like telling someone lying on the street after a bad accident,
> bleeding and torn, that the rate of blood loss has slowed so all
> is well: just get your confidence back, get up and go home.
> As Americans will perhaps discover in the months ahead there is
> a huge difference between honest optimism and wilful deceit.

2009 May 22 12:45 AM

[dieseljeep!]

Those "Green Shoots" may in fact be "Greenbacks Shooting" out of the Treasury cannon and into the economy. We are now ready to witness the return of '70's style inflation on our way to hyperinflation. Please keep your seatbelt fastened at all times...

2009 May 29 11:11 PM