Sunday, November 28, 2010

The Macroeconomic Week in Review for the Week Ending November 27, 2010

1) From Market to Market...
A key government report this week revealed the U.S. economy grew slightly faster in the 3rd quarter of 2010 than analysts originally believed. In an upward revision of previous data, the Commerce Department reported the U.S. economy expanded at a 2.5 percent annual rate from July through September. Though modest, the gain represents a 25-percent increase over initial estimates released last month.

But the beleaguered housing sector continues to weigh heavily on the economic recovery. According to the National Association of Realtors, existing home sales declined 2.2 percent in October and were down nearly 40 percent from their peak in September of 2005.

The median price for a home sold in October fell to $170,500, down nearly one percent from a year ago. Prices continue to be depressed by weak sales and a huge supply of unsold homes... ...Which may explain why orders to U.S. factories for big-ticket durable goods plunged more than 3 percent last month in their largest decline in 21 months.

But, in a sign that may bode well for the holiday shopping season, U.S. consumers boosted their spending nearly 3 percent from June through September. That's their largest quarterly increase in nearly four years and it's a significant development because consumer spending accounts for about 70 percent of the domestic economy.

Experts say the U.S. economy would need to expand by 5 percent for a full year to push the unemployment rate down by a full percentage point. But for all of 2010, the economy is expected to grow by 2.6 percent.

2) From FT Alphaville...
Ben Bernanke probably made his most important speech since his ‘helicopter money‘ talk almost eight years ago. According to author and economist Richard Duncan this is the first time the Federal Reserve chairman has publicly pointed out that the international monetary system may have a structural flaw. In the dollar standard. In it he conceded the Dollar Standard is flawed. He said,
“As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances.”

As Duncan expresses:
The world has been put on notice that the United States will take steps to correct this defect and the destabilizing trade imbalances it permits. If the flaw cannot be corrected through international coordination, then unilateral actions by the United States should be anticipated. These actions would likely include trade tariffs. Tariffs would have a devastating impact on the countries pursuing an export-led growth strategy, particularly China.

The United States last resorted to trade tariffs in 1971 when the Bretton Woods system collapsed. At that time President Nixon imposed a 10% “surcharge” on all imports.

Which essentially means: trade wars cometh....

3) Charts:

[no longer available]

4) From Calculated Risk...

CoreLogic Shadow Inventory

For CR's End of the Week Summary go here.