Economic Update:  A Review of the Overall National Economy

01.15.2010

We continue to see a range of mixed messages on the overall outlook on the national economy. This goes along with the U shape recovery we have been suggesting for quite some time. We’ll use this column to highlight some of the national releases from this week.

The Federal Reserve Beige Book

The Beige Book is released two weeks prior to the Federal Open Market Committee meeting and is based on anecdotal evidence across the 12 Federal Reserve districts. The latest report indicates that conditions improved in 10 of the 12 districts, and two reported flat conditions. The overall gist of the report is that the recovery continues, but will likely be slow.

My overall impression of the report is that the Fed is not going to move anytime soon in increasing the Federal Funds rate. We can expect the rate to remain unchanged at their next meeting.

Retail Sales

The Census Bureau reported that retail sales were down .3% from November to December. The disappointment in the report was that this number failed to meet the consensus forecast of a .5% increase. The report did show that December retail sales for 2009 exceeded December 2008 sales by 5.4%.

The overall softness of the consumer is evident through a comparison of total retail sales for 2009 compared to 2008. 2009 sales were down 6.2% compared to 2008. While I continue to remain optimistic that the nation is going through an economic recovery, it is the reluctance of the consumer that will produce muted growth. The latest retail sales report shows this reluctance.

New Claims for Unemployment

New and continuing claims for unemployment were released yesterday, and the 4-week moving average for new claims continued the downward trend. Weekly claims did increase by 11,000, but the weekly number is quite volatile. Continuing claims showed a noticeable decline, and this is a positive development in the overall labor market situation.

Business Inventories

Business inventories showed an increase from October to November, suggesting that businesses are beginning to ramp up inventory levels following significant depletions of 2008 and 2009. The replenishment of inventories is one of the factors driving the manufacturing recovery. The Census Bureau report did show a continued declined in the inventory/sales ratio. So while inventories are beginning the grow, the decline in the inventory/sales ratio suggests that employers will need to call workers back in order to meet the production demands associated with a declining inventory/sales ratio. The current report is favorable for the outlook on jobs.

Consumer Sentiment

The consumer makes up 70% of the economy, and so any reports regarding the sentiment of the consumer are always met with interest. The report out this morning by Reuters/University of Michigan showed that consumer sentiment remained basically flat from the previous month, and came in under expectations. Basically, the consumer continues to face difficulties due to household balance sheets, problems in real estate, and the overall labor market situation. The report out today suggests that the consumer is not going to drive a fast recovery.

Suggestions

If you have any suggestions on future columns or research about specific industries or other economic data, please send me an email at udufrene@ius.edu.

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This information is provided by

Uric Dufrene. 

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in the School of Business at Indiana University Southeast.  He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels.   He previously served as dean of the School of Business.