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Weekly Economic Review: The Fed And Quantitative Easing

No economic event influenced the markets more this week than the subject of quantitative easing;

  • the Fed's January FOMC meeting minutes exposed uncertainty or unharmonious discussion between the members about the need for more QE, and the potential pitfalls of unwinding their QE balance sheet.
  • a paper from respected economists pointed out potential issues with QE.
  • the Federal Reserve spun this report saying many elements were not applicable to the current situation.

Investors have associated QE with stock market improvement. Although one can make a circumstantial case this is true, my belief is that there never was much cause and effect. Investors should ignore QE for a broad understanding of the economy. The economy is still weaning off of the great stimulus, and now is being hit by sequester (government spending austerity).

The overall effect (all things being equal), should be a slower growing economy than 2012. But all things are never equal.

The Econintersect economic forecast for February 2012 continues to show weak growth. The underlying dynamics have a whiff of improvement - but the zinger in the data was a supply chain contraction. However all the recession markers have evaporated, and one of our alternate methods to validate our forecast remains recessionary (but still only slightly so). Basically, we are saying that not enough products (crude, intermediate, and finished) were moved for sales or manufacture in February.

ECRI now believes a recession began in July 2012. ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value has been weakly in positive territory for over three months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Initial unemployment claims rose from 341,000 (reported last week) to 362,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - rose from 352,500 (reported last week) to 360,750. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line)

Bankruptcies this Week: RDA Holding, parent company of The Reader's Digest Association

Data released this week which contained economically intuitive components (forward looking) were:

  • Rail movements are somewhat improving looking at the 4 week average, but longer term trends are still declining.
  • The FOMC meeting minutes showing confusion over the effects of quantitative easing, as well as timing. Although this is not necessarily intuitive - it has caused many to re-evaluate the future and become less optimistic.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:
Investing.com Weekly Wrap-Up 22 February 2012
Gold's Collapse Should Mark Investor Cycle Low
What We Read Today 22 February 2013
Federal Reserve Disputes Study Conclusion that Quantitative Easing Can Be a Bomb
15 February 2013 ECRI's Weekly Leading Index Growth Again Marginally Less Good
Infographic of the Day: Consumer Credit Myths
Sequestration: Side Effects Will Slow Real GDP Growth, Not Reduced Demand
Verticals - Under and Out
Consumer Discretionary Stocks: In Trouble?
The New Banks in Town: Chinese Finance in Latin America
Steve Keen Kickstarter Campaign Gaining Strength
Do Rising Home Prices Mean More Can Change Jobs?
CBO Projects Lower Costs for Medicare and Medicaid
Fed's Balance Sheet 20 February 2013 Grows to $3.076 Trillion
Root Causes of Currency Wars
What We Read Today 21 February 2013
Week Ending 16 February 2013: Total Rail Traffic Growing
January 2013 Leading Economic Index Points to a Slow Economic Expansion
January 2013 Existing Home Sales Relatively Strong
February 2013 Philly Fed Business Outlook Sinks Further into Contraction
Nonfinancial Leverage NFCI Again Deteriorated Slightly w/e 15 February 2013
16 February 2013 Unemployment Claims 4 Week Average Climbs
January 2013 CPI Moderates to 1.6% Year-over-Year Inflation
Infographic of the Day: Perspective on Latest Russian Meteor Strike
Selling My Book at Amazon.com
Avoiding IRA Beneficiary Mistakes
Steve Keen: Using Kickstarter to Fund Research
What We Read Today 20 February 2013
Public Employee Unions - An Anvil Chained to the Democratic Party
December 2012 FOMC Meeting Minutes: Debating Quantitative Easing
Primary Dealers' Reduced Role in Treasury Auctions
Stocks, Gold, Silver: Time For Close Observation
Residential Building Sector Rebound Continues in January 2013
January 2013 Producer Price Index Increase Remains Moderate
Infographic of the Day: 10 Years of Building USA Debt
Gold Closes Below Important Support Level
Dude, Where's My Cheap Gas?
PhD in Stupidity
ProPublica: The Best In-Depth Reporting on Immigration
Week Ending 18 February 2013: Average Gasoline Price Rise $0.135 this Week, Up $0.43 In Last Month
Excess Cash on the Balance Sheet Is Wealth Destruction
Picking Stocks - Validea Offers a Refreshingly Different Approach
What We Read Today 19 February 2013
The Case for Silver Outpacing Gold
January 2013 Sea Container Counts Still Show Slow Growing Economy
Stratfor: Slippery Slope for USA of Drone Aerial Vehicle Strikes
Infographic of the Day: NASA Satellite Communication Network
Why You Should Own Bonds
Can France Escape The European Austerity Trap?
China: Property Loan Tightening
Barron's: The U.S. is Dropping the Dollar to Join a Common Currency
Confusion about Money and Banking
Investing in China: Out With the Dragon, In With the Snake
What We Read Today 18 February 2013
Holiday Economic Comedy: Consumer Stimulus
Infographic of the Day: President's Day
The Yen Plummets
Recreating the Asset Bubble: The Fed's Plan for Economic Recovery
Skiing Season
Insider Trading 15 February 2013: Higher the Market, the More Insiders Sell
This Week's Top 5 Market Movers: Variations On The Prevailing Themes
The Function of the State of the Union Address
What We Read Today 17 February 2013
Sunday Economic Comedy: Stop Criticizing the 1% and Join the 1%
Infographic of the Day: The Automatic Sequester
What I'll be Watching in 2013
The Week Ahead: Have We Passed the Housing Bottom?
Unemployment Claims Improve, But Not Enough for Stock Valuations
One Hundred Years of Intrusions
Central Bank News 16 Feb 2013: Rates Steady as Growth Prospects Impove
Trefis: Highlights Week Ending 16 February 2013
"Fear Of Missing Out" Is Driving This Rally
What We Read Today 16 February 2013
08 February 2013 ECRI's Weekly Leading Index Growth Marginally Less Good
Saturday Economic Comedy: Do Sex Strikes Really Work?
Infographic of the Day: Evolution of Star Trek
Beware of Month-over-Month Statistics
Is Inflation really a Problem?
AIG Yes! Disabled Annuitant No!
How Congress Could Fix Its Budget Woes, Permanently
What We Read Today 15 February 2013
1Q2013 Philly Fed Economic Forecasters See Little Change in Outlook for 2013
Preliminary February 2013 Michigan Consumer Sentiment Better than Expected

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.