by Calculated Risk on 8/22/2011 08:30:00 AM

This is a composite index from the Chicago Fed: Index shows economic activity improved in July

Led by improvements in production-related indicators, the Chicago Fed National Activity Index increased to –0.06 in July from –0.38 in June. Three of the four broad categories of indicators that make up the index improved in July; only the sales, orders, and inventories category deteriorated from June.
...
The index’s three-month moving average, CFNAI-MA3, increased to –0.29 in July from –0.54 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image in graph gallery.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

This index suggests the economy was still growing in July, but below trend.

Weekend:
• Summary for Week ending August 19th (with plenty of graphs)
• Schedule for Week of Aug 21st
• Some preliminary thoughts on Bernanke's 2011 Jackson Hole Speech

by Calculated Risk on 8/21/2011 08:08:00 PM

For discussion:

• From al Jazeera: Libya Live Blog. At 8 PM ET:

Al Jazeera's Zeina Khodr is in Green Square:

"There's a party in the Libyan capital tonight. The people are in charge of the city. They've decided the square is now called Martyr's Square, the original name/.

"They're shouting "we're free" and shooting at a poster of Gaddafi."

• From Reuters Top News

• From the NY Times: Latest Updates on the Battle for Tripoli

• From the Telegraph: Libya live

• From the WSJ: Live Blog: Libyan Rebels Pour Into Tripoli

Earlier:
• Summary for Week ending August 19th (with plenty of graphs)
• Schedule for Week of Aug 21st
• Some preliminary thoughts on Bernanke's 2011 Jackson Hole Speech

by Calculated Risk on 8/21/2011 05:00:00 PM

"Split-Rated" is a new song from Curtis Threadneedle, Merle Hazard and Marcy Shaffer. (Merle says they have another song in the works).

Lyrics by Curtis and Marcy. Merle wrote and arranged the music, performed by Curtis Threadneedle with Merle's band including Wolf Jackson (guitar) and Frances Cunningham (mandolin).

Websites: Curtis Threadneedle, Marcy Shaffer, and Merle Hazard. Some other songs include Merle's "Double Dippin" and Marcy's "Bearish"

Earlier:
• Summary for Week ending August 19th (with plenty of graphs)
• Schedule for Week of Aug 21st
• Some preliminary thoughts on Bernanke's 2011 Jackson Hole Speech

by Calculated Risk on 8/21/2011 01:07:00 PM

As I mentioned in the weekly schedule, the most anticipated event this coming week is Fed Chairman Bernanke's speech at Jackson Hole on Friday.

Here are some preliminary thoughts about the speech ...

• Last year Bernanke paved the way for QE2 with his Jackson Hole speech on August 27, 2010. Bernanke outlined three possible policy options for additional monetary accommodation: 1) additional purchases of longer-term securities (QE2), 2) change extended period language (the FOMC just did this), and 3) lower the rate of interest that the Fed pays banks on the reserves.

• It is likely that Bernanke will again outline policy options for further easing. It appears that Bernanke will once again discuss the possibility of additional purchases of longer-term securities (QE3), and some analysts have suggested that Bernanke will also discuss changing the composition of the balance sheet (keeping the size of the balance sheet stable, but changing the mix toward longer term securities). There will probably be some discussion of other options - like a higher inflation target - but just like last year, Bernanke will probably argue against these options.

• Bernanke will NOT commit to any option. Any further easing will be announced by the FOMC. However Bernanke might provide clues as he did last year. Here is what he said:

Under what conditions would the FOMC make further use of these or related policy tools? At this juncture, the Committee has not agreed on specific criteria or triggers for further action, but I can make two general observations.

First, the FOMC will strongly resist deviations from price stability in the downward direction. ...

Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. ...

He might change these comments a little this year.

• Economic outlook: Bernanke will probably make statements consistent with the recent FOMC statement:

"The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased."

Since the FOMC expects the unemployment rate to decline gradually, they probably expect trend growth (as opposed to the very slow growth that many analysts expect). That is consistent with comments from NY Fed President William Dudley this week:

Some of the weakness in economic activity in the first half of the year was due to temporary factors such as the hit to household income from higher food and energy prices, and supply chain disruptions following the tragic earthquake in Japan. These restraining forces have abated and thus, we should see stronger growth in the second half. But it is clear that not all of the weakness was due to these one-time factors—and in light of this, I have revised down my expectations for the pace of recovery going forward.

And from Cleveland Fed President Sandra Pianalto:

My latest forecast is for the economy to grow at a rate of about 2 percent this year, and about 3 percent in each of the next two years. Our economy has to grow at about a 2-1/2 percent clip just to absorb new labor force entrants and to keep the unemployment rate from rising.

That is still weak growth, but more optimistic than many analysts.

• My guess is Bernanke will outline some policy options, and probably focus on changing the composition of the balance sheet as the first choice. Additional asset purchases (QE3) will probably be discussed too.

Yesterday:
• Summary for Week ending August 19th (with plenty of graphs)
• Schedule for Week of Aug 21st

by Calculated Risk on 8/21/2011 09:38:00 AM

With the recent decline in oil prices, most analysts are forecasting a sharp decline in gasoline prices over the next few weeks. (Update: the graph shows WTI, but gasoline prices are impacted by Brent international prices - and Brent hasn't fallen as far as WTI).

Gasoline prices jumped from about $3.10 per gallon in early February to over $3.50 per gallon in early March as WTI oil prices increased from about $84 per barrel to over $100 per barrel. Since oil prices have declined back to the early February levels (Bloomberg: WTI is at $82 per barrel and Brent is at $108), gasoline prices will probably decline too.

Note: Professor Hamilton recently noted an asymmetric response to changes in oil prices ("although oil price increases were often associated with economic recessions, oil price decreases did not bring about corresponding economic booms."). But a decline in gasoline prices will help a little.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

Yesterday:
• Summary for Week ending August 19th (with plenty of graphs)
• Schedule for Week of Aug 21st