Currency-risk management consulting firm FiReapps reports that the surging dollar cost North American corporations $18.66 billion in revenue in the fourth quarter. And the dollar has surged even higher since.
Meanwhile, evidence of the seriousness of the economic slowdown continues to mount.
Forget about the strong jobs report a week ago Friday. The slowdown has shown for several months in factory orders, manufacturing indexes, consumer spending, auto sales, and the housing industry.
It’s been more of the same with the reports of the last two weeks. Retail Sales were down 0.6% in February, worse than forecasts, after being down 0.8% in January and 0.9% in December, a three month total of –2.3%. The ratio of business inventories to sales has risen to its highest level since 2009. Unintentional inventory build is a negative for future production, and traditionally another sign of a slowing economy. Meanwhile, the University of Michigan’s Consumer Sentiment Index fell from 95.4 in February to 91.2 in March, its lowest level since November.
This week it was that the Empire State (NY) Mfg Index declined from 7.8 in February to 6.9 in March, versus the consensus forecast of an increase to 8.5.
Industrial Production ticked up only 0.1% in February versus the consensus forecast of economists of a 0.3% improvement. Within the report, manufacturing was down 0.2%, its third monthly decline. More troublesome, auto and auto parts manufacturing tumbled a sizable 3.0%. And the Housing Market Index, which measures the confidence of home-builders, declined from 55 in February to 53 in March, its third straight monthly decline, and to its lowest level since last July.
This morning’s report might explain that 3-month drop in builder confidence. New Housing Starts plunged 17% in February to an annualized rate of only 897,000 from 1.08 million in January. The consensus forecast of economists was for a much smaller decline to 1.03 million. It was mostly due to weather, since starts in the Northeast plunged 56% and 37% in the Midwest. Permits for future starts were up 3.0%. But regardless of the cause, it was another blow to the economy.
How serious is the slowdown?
Last fall, it looked like the economic recovery was accelerating dramatically. GDP growth jumped from a recessionary – 2.1% in the first quarter of 2014 to 4.5% in the second quarter, then 5.0% in the third quarter. However, after just two strong quarters it suddenly plunged again, back down to only 2.2% in the fourth quarter, and is forecast to come in as low as 1.7% in the first quarter of 2015.
Meanwhile, the plunge in the price of oil continues. This chart is from yesterday’s close and the price is down another 2.1% at $42.94 a barrel at the moment this morning.
The Fed says it needs 2% annual inflation for economic strength and keeps saying it expects inflation to show up at any time. It looked last summer like it was getting its wish, but the surging dollar and plunging oil prices put an end to that, with inflation moving in the opposite direction since last fall and into January.
And what does the resumption of the plunge in oil prices say about the next few months, not to mention that the Producer Price Index, was negative –0.5% in February, versus the consensus forecast of economists for an increase of 0.3%, and after being down –0.8% in January?
It would really seem strange if the Fed can look at all this and decide it needs to raise interest rates soon to cool off the economy.
To read my weekend newspaper column click here: Sorry, But This Is Not 1997 For the Market
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