FYI | Oct 26 2006
By Greg Peel
There was little surprise in the US last night as the Fed remained on hold for the third straight month, even though markets had stalled to a crawl ahead of the meeting.
The language was only slightly different from the Fed this time, although for once more forward-looking than frightened of data yet to come in. Oil prices have diminished in importance, and while inflation fears are still part of the agenda, the cooling housing and auto markets are providing lead indicators for an economy the Fed believes will grow “modestly” next year.
To that end monetary policy is now in a suspended state, as equal forces pull from either direction. There remains a total lack of agreement among US economists as to what happens next, with at least one suggesting the Fed will remain on hold for 12 months, while others suggest easing ahead and still others believe inflation will yet lead to another rise.
While the cooling housing market has been the centre of attention, and the US auto industry crisis also grabs headlines, FN Arena’s good friend and renowned commentator Dennis Gartman was in a bit of a state of shock last night. It revolved around a fairly minor piece of news, being the latest economic survey from the Fed district of Virginia.
Minor only because Richmond is not considered a benchmark in US economic measures, as is the case with the likes of Philadelphia. A surprising Philly report can move markets, whereas Richmond tends to be overlooked. Nevertheless, the signs were disturbing.
Gartman reports the main manufacturing index fell from 9 in September to -2 for October. Shipments from manufacturers fell from 9 all the way to -7. Revenues from services fell from 11 to 5, while revenues from retailers fell from (and Gartman is simply stunned by this figure) an already modestly weak -1 to a shockingly weak
-27. Finally, the Jobs Index fell from 8 to 4. Said Gartman:
“We tried to find one segment of this report that was not shockingly weak. We found none. Nothing in this report speaks of economic strength; all speak of present or portending economic weakness.”