Flash Update
Flash Update
December 11, 2006
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M3 Growth Tops 10%
Inflation Signals Turn Higher Again
First Post-Election Jobs Data Show Slowing Economy
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The ongoing SGS M3 series and the monthly averages on the FRB trade-weighted and SGS financial-weighted dollars have been updated on the Alternate Data page. Assuming the U.S. Treasury publishes its 2006 Financial Report of the U.S. Government (GAAP-based accounting) as planned on December 15th, an Alert covering same will be published next weekend. -- John Williams
Economic releases of the last week or so continued showing a rapidly deepening recession, along with early confirmation of inflation resuming its upward trend. Beyond ongoing softness in the dollar and some upside movement in oil prices threatening inflation, broad money supply growth is accelerating to the upside.
October consumer credit showed a seasonally-adjusted monthly contraction, one that surprised market expectations and bode poorly for booming holiday sales.
The manufacturing purchasing managers survey (ISM) dropped below the contraction/growth index level of 50.0, to 49.5 in November from 51.2 in October. Such was the first time the series had indicated an outright contraction in manufacturing since April 2003, when the economy was coming out of what will prove to have been the first dip of a severe double-dip recession. Readings below 50.0 usually coincide with recessions and often indicate looming downturns in the Federal Reserve's industrial production series.
All the ISM measures are diffusion indices, where a reading below 50.0 indicates a contraction. Among the more important component measures, new orders fell to 48.7 from 52.1, and employment dropped to 49.2 from 50.8. Of interest, the prices paid component reversed direction and rose to 53.5 from 47.0.
The November non-manufacturing survey, which has little value as an economic indicator (see November SGS), rose to 58.9 from 57.1. Its employment measure, however, remained weak at 51.6 versus 51.0 the prior month, and its inflation measure also turned higher, coming in at 55.6 versus 51.9 in October.
Further on the employment front, the October help-wanted-advertising index (HWA) "rose" to 30 from a downwardly revised 29 in September. August and September readings of 30 had been the lowest since the Kennedy Administration. The revamped September reading of 29 shifts the superlatives back to the Eisenhower Era.
Against the weak ISM and HWA measures, one could have expected a more miserable November employment report than the Bureau of Labor Statistics provided, but the economic release still showed a weakening economy.
Seasonally-adjusted November payrolls rose by 132,000 (134,000 net of revisions) +/- 106,000, following October's revised gain of 79,000 (previously 92,000), with unusual upward revisions again thrown into prior periods. On a year-to-year basis, jobs growth slowed sharply from 1.5% to 1.3%.
The household survey showed a post-election increase in the unemployment rate, along with an employment gain of 277,000. The seasonally-adjusted November U.3 unemployment rate rose to 4.47% +/- 0.2 from 4.15% in October. Unadjusted U.3 rose to 4.3% from 4.1%, while the unadjusted broader U.6 measure rose to 7.8% from 7.6%. Adjusted U.6 eased to 8.0% from 8.1%. Corrected for the finagling the Clinton Administration did in defining away the existence of most "discouraged workers," actual unemployment continues to hold around 12%.
As to inflation concerns, the upturns in the ISM inflation indices and the pending rebounds in annual CPI and PPI inflation, soon will begin rattling the credit markets and Fed watchers. One factor that also should be making its way shortly into the inflation debate is the accelerating pace of growth in the old broad money supply M3. Most serious economists do not buy the Federal Reserve's excuses for ceasing the reporting of M3. The ongoing SGS series shows annual M3 growth jumping to 10.1% in November, up from 9.7% in October.
Further detail will follow in December's "Shadow Government Statistics" monthly newsletter, targeted for release at the end of the month. Further details will be advised in next weekend's Alert.
Economic releases of the last week or so have confirmed a deepening recession, along with early confirmation of inflation resuming its upward trend.