As the US government and Federal Reserve work tirelessly to assure that the engines of a debt-based economy (the banks and lending institutions) remain well-supplied with capital and liquidity, the wheels are falling off.
First, retail sales and store traffic suffered some of the most pronounced drops on record in September, indicating that a consumer-led recession is upon us – which would make this the first one since 1991.
…the number of people in U.S. malls and department stores declined 9.3% year over year in September. The U.S. Commerce Department this morning reported that retail sales fell 1.2% in September, marking the biggest decline in three years.
Next, a measure of manufacturing activity in the Philadelphia and NY regions and a different measure of nationwide manufacturing capacity utilization both took very sharp turns for the worse:
WASHINGTON (MarketWatch) — Turmoil in the credit markets has spilled over with a vengeance into the factory sector in the Philadelphia region, the Philadelphia Federal Reserve said Thursday.
The Philly Fed index plunged to a reading of negative 37.5 in October from a positive 3.8 in September. It was the sharpest one-month decline on record and marked the lowest level for the gauge in 18 years. On Wednesday, the New York Fed reported that factory activity in the Empire State region also fell sharply.In addition, about 43% said the recent turmoil had forced them to scale back their capital-spending plans.
The region’s manufacturing executives expect no growth over the next six months. The index of future activity fell to negative 4.2 from 30.8 in the previous month.
Earlier Thursday, the Federal Reserve reported a stunning 2.6% drop in industrial production in September, the biggest one-month drop in 34 years.
The data "make clear that the factory sector has taken a powerful turn for the worse," Action Economics said in a note to clients. "In total, since August, the economy has shifted from a profile of remarkable resilience to one of freefall at a pace that is consistent with a sizable, rather than mild, recession," Action Economics said.Meanwhile, the four-week average of unemployment claims moved to its highest level since October 2001.
For the week ended Oct. 11, the number of initial claims declined to 461,000, down 16,000 from the prior week, according to the government. The four-week average of those claims rose 750 to 483,250 — the highest level since October 2001.
Also today, we found out that the August data for international capital flows showed a second straight month where foreigners sold more US investments than they bought. Luckily US residents sold even more foreign assets than that and brought the money home so the Treasury still got to report a very modestly positive number. This report (called the TIC report) is one I follow closely because it gives us some indication of the willingness (or ability?) of foreign banks and private parties to continue to fund our excess borrowing needs.
Net foreign purchases of long-term securities were $14.0 billion.
* Net foreign purchases of long-term U.S. securities were negative $8.8 billion. Of this, net purchases by private foreign investors were $1.5 billion, and net purchases by foreign official institutions were negative $10.2 billion.
* U.S. residents sold a net $22.7 billion of long-term foreign securities.
The important figure here is the final balance of $14 billion as compared to the need of the US to fund (borrow) roughly $70-$80 billion a month to keep things moving along.
Unless this capital flow improves – a lot – the dollar is going to be under additional international pressure.
Okay, that’s it for now….back to working on Ch 20.
by pinecarr