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U.S. Economy: Manufacturing Unexpectedly Contracts
December 1, 2006 (Courtney Schlisserman - Bloomberg)
Manufacturing in the U.S. unexpectedly shrank last month for the first time in more than three years, exacerbating a housing-led economic slowdown.
The Institute for Supply Management's factory index fell to 49.5, from 51.2 in the prior month. A reading below 50 signals contraction in an industry that accounts for 12 percent of gross domestic product. Construction spending dropped by the most in five years in October, sliding 1 percent, the Commerce Department said in Washington today.
Bonds rallied while stocks and the dollar dropped as traders speculated Federal Reserve Chairman Ben S. Bernanke will be forced to reduce his focus on inflation and cut interest rates in response to slackening growth.
"We're not heading toward a recession, but it's putting the economy into a growth trajectory that'll be sufficiently below potential to prompt the Fed to cut rates," said Eric Green, chief market economist at the securities arm of Countrywide Financial Corp. in Calabasas, California. "By the January meeting, the Fed will see growth as the dominant risk."
AntiSpin: How about: "Four out of five economists recommend no recession for those readers who don't want one." And: "When the economy slows, the good news is so will inflation, so the Fed will soon cut interest rates," say a four out of five economists who work for Wall Street, the government, or orthodox academia and are therefore in no position to countenance the likelihood that the Fed is in no position to pour gasoline on a smoldering pile of inflation.
Betting with the herd always carries the lowest career risk. When it comes to economic predictions, it is always better to fail conventionally and en masse than succeed unconventionally, either alone or in the company of outsiders on the ideological fringe. "No guts, no glory" is not the four-out-of-five-economists' credo.
Last month's manufacturing decline in the U.S. was expected by anyone who read our analysis in June 2005 that the housing bubble had peaked, that the negative wealth effect of declining home values take six to nine months to impact consumer spending, and then another six months or so to show up as declining manufacturing demand.
Does this mean the Fed will cut rates in January? It means they will sure want to, but the fact that the dollar took another dive while the euro and gold shot up on the lousy manufacturing news is further evidence that 2007 is the year of Stagflation Godzilla–his time has come. The Fed is going to have to manage through this peculiar stagflationary world, and Ben Bernanke is set up for the worst Fed chairman goat job of since 1980.
One major change is that the mainstream press, at least outside the U.S.–such as in Canada where this interview was taken–is now much more receptive to the possibility that a weak dollar may hamstring the Fed in the next U.S. recession. To wit:
reportonbusinessyoutube
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For macro-economic and geopolitical currency ETF advisory services see "Crooks on Currencies"
To buy and trade gold easily and inexpensively, see BullionVault
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Copyright © iTulip, Inc. 1998 - 2006 All Rights Reserved
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer
December 1, 2006 (Courtney Schlisserman - Bloomberg)
Manufacturing in the U.S. unexpectedly shrank last month for the first time in more than three years, exacerbating a housing-led economic slowdown.
The Institute for Supply Management's factory index fell to 49.5, from 51.2 in the prior month. A reading below 50 signals contraction in an industry that accounts for 12 percent of gross domestic product. Construction spending dropped by the most in five years in October, sliding 1 percent, the Commerce Department said in Washington today.
Bonds rallied while stocks and the dollar dropped as traders speculated Federal Reserve Chairman Ben S. Bernanke will be forced to reduce his focus on inflation and cut interest rates in response to slackening growth.
"We're not heading toward a recession, but it's putting the economy into a growth trajectory that'll be sufficiently below potential to prompt the Fed to cut rates," said Eric Green, chief market economist at the securities arm of Countrywide Financial Corp. in Calabasas, California. "By the January meeting, the Fed will see growth as the dominant risk."
AntiSpin: How about: "Four out of five economists recommend no recession for those readers who don't want one." And: "When the economy slows, the good news is so will inflation, so the Fed will soon cut interest rates," say a four out of five economists who work for Wall Street, the government, or orthodox academia and are therefore in no position to countenance the likelihood that the Fed is in no position to pour gasoline on a smoldering pile of inflation.
Betting with the herd always carries the lowest career risk. When it comes to economic predictions, it is always better to fail conventionally and en masse than succeed unconventionally, either alone or in the company of outsiders on the ideological fringe. "No guts, no glory" is not the four-out-of-five-economists' credo.
Last month's manufacturing decline in the U.S. was expected by anyone who read our analysis in June 2005 that the housing bubble had peaked, that the negative wealth effect of declining home values take six to nine months to impact consumer spending, and then another six months or so to show up as declining manufacturing demand.
Does this mean the Fed will cut rates in January? It means they will sure want to, but the fact that the dollar took another dive while the euro and gold shot up on the lousy manufacturing news is further evidence that 2007 is the year of Stagflation Godzilla–his time has come. The Fed is going to have to manage through this peculiar stagflationary world, and Ben Bernanke is set up for the worst Fed chairman goat job of since 1980.
One major change is that the mainstream press, at least outside the U.S.–such as in Canada where this interview was taken–is now much more receptive to the possibility that a weak dollar may hamstring the Fed in the next U.S. recession. To wit:
reportonbusinessyoutube
________
For macro-economic and geopolitical currency ETF advisory services see "Crooks on Currencies"
To buy and trade gold easily and inexpensively, see BullionVault
To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List
Copyright © iTulip, Inc. 1998 - 2006 All Rights Reserved
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer
I work with a girl from Liverpool; she has been stateside for about 20yrs. She was bemoning the fact she cant get an offshore bank account anymore and how the dollar was getting pounded these days. 
Her american co workers well :confused:
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