Implications: Reports over the past two days show an accelerating economy with rising inflation. Note that this is before the impact of the Fed's new round of quantitative easing. New claims for unemployment insurance fell 17,000 last week to 421,000. The four-week average of claims declined to 428,000, the lowest in more than two years. Continuing claims for regular state benefits declined 191,000 to 4.09 million. These figures suggest a solid rebound in job creation in December. Meanwhile, exports increased and imports declined for the second straight month, resulting in a large decline in the trade deficit in October. Due to problems with the way the government seasonally adjusts oil prices, trade was a huge negative for real GDP growth in Q2/Q3. However, the same adjustment issue will likely result in a very large positive contribution from trade on real GDP growth in Q4. We estimate that Q4 real growth will come in at about a 5% annual rate. (See, Monday Morning Outlook from 11/8/2010). In other trade news this morning, both import and export prices surged higher in November. Import prices increased 1.3% and are up 3.7% in the past year. Excluding oil, import prices were up 0.7% in November and are up 2.7% in the past year. Export prices spiked 1.5% in November and are up 6.5% in the past year. Excluding farm products, export prices increased 0.8% in November and are up 5.1% in the past year. We expect further large gains in trade prices as commodity markets react to an overly loose Federal Reserve.
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Posted on Friday, December 10, 2010 @ 10:20 AM
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