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Thursday, February 15, 2007


the gdp picture

a major downward revision in positive q406 data has given a new look to american economic conditions, as noted at big picture.

as batted around here, here and here in the last month, the onset of recession looks to be more and more probable. not only has gdp taken this pessimistic turn, not only is housing finally exhaling, not only has earnings growth sunk below 10%, but industrial production is already in a deepening recession.

but -- as yesterday showed -- these downward revisions are giving room for the fed to move toward the easing that paul mcculley talked about having been priced into market expectations.

The market rallied on Wednesday, when the Fed chief soothed investors nerves, saying that inflation is likely ebbing, reducing chances that the central bank would hike interest rates later this year. However, Bernanke said the Fed would continue to monitor economic data.

interestingly, capital flowed out of the united states in january on a net basis for the first month since june 2005. though it may mean little in a broader view, there was this to say:

The dollar fell against yen and the euro following the report, which, according to Action Economics, "didn't sit too well" with the markets after Tuesday's report on the nation's growing trade gap and a Wall Street Journal report that China is considering shifting some of its $1 trillion in foreign reserves into riskier assets, such as corporate bonds, stocks and even commodities.

no note was made of the recent fall in the price of oil as a check against petrodollar recycling, although this is almost certainly a factor.


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