The tenor of U.S. economic headlines in the month of October was generally bearish, i.e. non V-shaped esque. On the bright side, reports on Industrial Production, Leading Indicators, S&P/CaseShiller Home Price Index, Existing Home Sales and Durable Goods all moved higher.
We also received a strong manufacturing report from the New York Fed. Most importantly, GDP for the third quarter came in stronger than expected. Therefore, there is little doubt the Great Recession is over or at the very least, dormant.
But the sky is far from sunny. For instance, the GDP figure, 3.5%, while surprisingly strong, was met with immediate derision. For example, excluding motor vehicles, GDP growth was only up 1.9%. Mind you, at this juncture any growth is indeed an immense improvement. However, the underlying theme is that the government sponsored cash-for-clunkers program artificially skewed the numbers for the third quarter by robbing sales from the fourth and first quarters.
Ditto for the government’s $8,000 tax credit for buyers of new homes, i.e. residential fixed investment (+23.4%) contributed to positive GDP growth for the first time since 2005. Now that this credit has expired, the market has softened, i.e. Housing Starts, Building Permits, New Home Sales and MBA mortgage applications all reportedly fell in October; as did Factory Orders. We also received worrisome notes from the Philadelphia, Dallas and Richmond Feds.
Personal income and spending fell and of course, another 263,000 Americans lost their jobs in September. Therefore, Retail Sales and Consumer Confidence fell in accord. What’s more, average retail gasoline jumped nearly 10% from the second quarter. Therefore, the consumer, the driver behind two thirds of the U.S. economy, remains in a precarious state. U.S. equity markets jumped upon initial receipt of the GDP figures; the Dow was up 2.1% and the S&P was up 2.3%. However, with a night to sleep on it, both of these markets sold off hard on Friday, down 2.5% and 2.9%, respectively.
Bottom line, the key takeaway from last Thursday’s GDP report is that serious doubts exist regarding the U.S. economy’s ability to sustain growth once it is weaned off the government’s teat.
So this brings us to today’s Hubris Alert, otherwise known as the White House’s messianic ability to calculate how many jobs it has saved. You have to admit, that takes chutzpah to claim you saved even one job given that 2.7 million Americans have been laid off since the government jammed a stimulus package (that it claimed would cap the unemployment rate at 8.5%) down our throat back in February.
Here at we are not buying the White House’s rhetoric and we are getting the sense the market is growing tired of it as well.
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.