by Calculated Risk on 10/17/2010 08:45:00 AM

A summary of last week - mostly in graphs.

Perhaps the biggest story of last week was the speech from Fed Chairman Ben Bernanke: Monetary Policy Objectives and Tools in a Low-Inflation Environment.
Although he didn't outline any specific details, he clearly stated that the unemployment rate was too high and inflation too low. Here are the key sentences:

"[I]nflation is running at rates that are too low relative to the levels that the Committee judges to be most consistent with the Federal Reserve's dual mandate in the longer run.
...
[U]nemployment is clearly too high relative to estimates of its sustainable rate. Moreover, with output growth over the next year expected to be only modestly above its longer-term trend, high unemployment is currently forecast to persist for some time."

That strongly suggests QE2 will arrive on November 3rd.

Retail Sales increased in September

On a monthly basis, retail sales increased 0.6% from August to September (seasonally adjusted, after revisions - August sales were revised up), and sales were up 7.3% from September 2009. Retail sales increased 0.4% ex-autos - about at expectations.

Click on graph for larger image in new window.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

Retail sales are up 9.6% from the bottom, but still off 3.2% from the pre-recession peak.

Retail sales had moved mostly moved sideways for six months, but this is now the high for the year.

NY Fed Manufacturing index increased in October

Here is a graph from the NY Fed.

"The general business conditions index rose 12 points, to 15.7. The new orders and shipments indexes were also positive and well above their September levels.
...
The index for number of employees climbed for a third consecutive month, although the average workweek index dipped slightly."

These regional surveys had been showing a slowdown in manufacturing and are being closely watched right now. This was above expectations.

Inflation measures are all very low

Three measures of inflation: core CPI, median CPI and trimmed-mean CPI, were all below 1% in September, and also under 1% for the last 12 months.

This graph shows these three measure of inflation on a year-over-year basis.

From the Cleveland Fed: "Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.2% annualized rate) in September. The CPI less food and energy was unchanged at 0.0% (0.0% annualized rate) on a seasonally adjusted basis.

Over the last 12 months, the median CPI rose 0.5%, the trimmed-mean CPI rose 0.8%, the CPI rose 1.1%, and the CPI less food and energy rose 0.8%"

They all show that inflation has been falling, and that measured inflation is up less than 1% year-over-year. Core CPI and median CPI were flat in September, and the 16% trimmed mean CPI was up 0.1%.

Small Business Optimism Index Remains at Recessionary Level

Here are a few graphs based on the NFIB press release: Small Business Optimism Index Remains at Recessionary Level

This graph shows the small business optimism index since 1986. Although the index increased slightly in September, it is still at recessionary level according to NFIB Chief Economist Bill Dunkelberg who said: "The downturn may be officially over, but small business owners have for the most part seen no evidence of it."

This graph shows the net hiring plans over the next three months.

Hiring plans have turned negative again. According to NFIB: "Over the next three months, eight percent plan to increase employment (unchanged), and 16 percent plan to reduce their workforce (up three points), yielding a seasonally adjusted net negative three percent of owners planning to create new jobs, down four points from August."

This graph shows the percent of small businesses saying "poor sales" is their biggest problem.

Usually small business owners complain about taxes and regulations (that usually means business is good!), but now their self reported biggest problem is lack of demand.

Ceridian-UCLA: Diesel Fuel index declines in September

"The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers, and consumers, fell .5 percent in September after falling 1.0 percent in August ... The decline indicates four consecutive months of limited to no increases in over the road movement of produce, raw materials, goods-in-process and finished goods since the PCI peaked in May 2010."

This graph shows the index since January 1999.

This is a new index, and doesn't have much of a track record in real time, although the data suggests the recovery has "stalled" since May.

Consumer Sentiment

From MarketWatch: Consumer sentiment edges lower in October

The preliminary Reuters-University of Michigan consumer sentiment index edged lower in October, falling to 67.9 ... from 68.2 last month.

Consumer sentiment is a coincident indicator - and this suggests a sluggish economy.

This was a big story in July when consumer sentiment collapsed to the lowest level since late 2009.

It has moved sideways since then ...

Other Economic Stories ...

From David Streitfeld at the NY Times: From This House, a Foreclosure Freeze

Lawler: "Early read" on September Existing Home Sales

From the Association of American Railroads: Rail Intermodal Traffic at 2008 levels, Carload Traffic Lags

From Edward Glaeser at Economix: The Work Behind the Nobel Prize

This year’s Nobel Memorial Prize in Economic Science ... was awarded today to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides for their research on “markets with search frictions,” which means any setting where buyers and sellers don’t automatically find each other.

Unofficial Problem Bank List at 875 institutions
Best wishes to all.