FLASH UPDATE - February 10, 2009

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

February 10, 2009

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Pending Relief Packages of Limited Positive Impact

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PLEASE NOTE: The full newsletter is well advanced and will be published in the next couple of days, pending some further detail, likely out today, on a revamped banking system bailout and the Obama stimulus package (see below). This brief Flash Update touches upon that environment and a quick review of the December trade deficit and January retail sales due for release this week.

– Best wishes to all, John Williams

The details of the bailout and stimulus packages will affect the specifics of what is written in the pending SGS Newsletter.  Based, however, on what already has been leaked or published, the new programs likely will have limited positive impact and will not alter the broad outlook on the re-intensifying systemic solvency crisis or the deepening structural depression. Nonetheless, the details need to be reviewed carefully for a fair assessment.  

On the solvency side, as circumstances stand, the banking system appears headed for eventual nationalization, at least for some of the larger banks. 

Where the Administration appears to recognize that the economic downturn is at least partially a structural problem, the crux of the issues related to household income stress — tied to U.S.-unfriendly trade policies — are not addressed meaningfully. Separately, the heavy Treasury funding needed to cover the stimulus package likely will provide the segue to increasingly heavy monetization of U.S. debt by the Federal Reserve, and to mounting issues on the U.S. dollar-debasement/inflation front. Again, details will follow in the newsletter.

Week Ahead. Trade Deficit: Consensus expectations are for a further sharp improvement in the December trade deficit, due for release Wednesday (February 11th). While almost anything is possible with this release, the relative bottoming in oil prices and the potential reversal of possible recent irregular flows of import paperwork could generate an unexpected deterioration. However the number is reported, a major surprise should impact the "preliminary" revision to the fourth-quarter GDP estimate (a wider deficit means a more negative GDP report and vice versa).

Retail Sales: Due for release on Thursday, February 12th, January retail sales should continue showing a pattern of month-to-month and year-to-year contraction, but with softening deterioration on a monthly basis. Before adjustment for inflation, some relative month-to-month bottom bouncing is increasingly likely in the next couple of months, as seasonally-adjusted activity hits a low-level plateau.  Net of inflation adjustment, however, the pace of annual contraction likely will continue to deepen, reflecting a deepening, severe economic contraction.

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