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W
EEKLY
E
CONOMIC
&
 
F
INANCIAL
C
OMMENTARY
 
May 15, 2009
U.S. Review Global Review
Retail Sales
Month-over-Month Percent Change-3.5%-2.8%-2.1%-1.4%-0.7%0.0%0.7%1.4%2.1%2.8%3.5%20052006200720082009-3.5%-2.8%-2.1%-1.4%-0.7%0.0%0.7%1.4%2.1%2.8%3.5%Retail Sales: Apr @ -0.4%
 
Chinese Industrial Production Index
 Year-over-Year Percent Change of 3-Month Moving Average0%5%10%15%20%25%1999200120032005200720090%5%10%15%20%25%Industrial Production: Apr @ 7.3%Chinese Industrial Production: Apr @ 8.9%
 
Relapse in China?
If there has been a country this yearwhere bona fide “green shoots” ofrecovery have been spotted itwould have to be China. Forexample, the manufacturing PMIhas stood in expansion territoryover the past two months, andconstruction activity appears to bepicking up. Therefore, it was a bitdisappointing to see the year-over-year growth rate of industrialproduction decline from 8.3 percentin March to 7.3 percent in April (seechart at left). Have “green shoots”in China turned into brown weeds?It’s difficult to pinpoint the exactreason for the slowdown inindustrial production growth inApril, but exports may be part ofthe explanation. Exports, whichcontracted at a year-over-year rateof 17.1 percent in March, fell22.6 percent in April (see chart ontop of page 4). Continuedcontraction, albeit at slower rates,appears to be occurring in most
Please turn to page 4
 
Recent Special Commentary
Structural Issues Impede Recovery
Suddenly many of those “greenshoots” that gathered so muchattention a few weeks ago appear tobe losing some of their bloom. Oneof this week’s majordisappointments was a larger-than-expected drop in retail sales.Overall retail sales fell 0.4 percent inApril and sales excluding thevolatile motor vehicle sector fell 0.5percent. Moreover, declines forMarch were somewhat worse thanfirst reported.Gains in retail sales in January andFebruary had raised hopes that theworst was over. Consumerspending actually posted a modestinflation-adjusted gain in the firstquarter. We had warned back inlate March that is was too soon tobuy into a stabilization of retailsales. Much of the improvement in January and February was merely astatistical artifact, reflecting asmaller than usual decline followingan unusually weak holiday season.Overall retail sales in April fell 0.4percent, following a 1.3 percentdrop the prior month. Part ofApril’s drop was attributable tofalling gasoline prices. Sales atgasoline stations fell 2.3 percent inApril.
Please turn to page 2
DateTitleAuthors
May-14Global Chartbook - May 2009Bryson & QuinlanMay-14Confidence: Does Anybody Have Any?Silvia, York & WhelanMay-14Inventories: Rebalancing the Real EconomySilvia & WhelanMay-14Are U.S. Consumers on a Diet, or Just Turning Thrifty?Vitner
 
U.S. Forecast
ActualForecastActualForecast200820092005200620072008200920101Q2Q3Q4Q1Q2Q3Q4Q
Real Gross Domestic Product
1
0.92.8-0.5-6.3-6.1-2.4-0.21.72.92.82.01.1-3.01.6Personal Consumption0.91.2-3.8-4.32.20.11.21.33.03.02.80.2-0.51.3Inflation Indicators
2
"Core" PCE Deflator2.22.32.31.91.81.50.90.82.12.32.22.21.20.9Consumer Price Index4.24.35.21.5-0.2-1.4-2.7-0.33.43.22.93.8-1.21.0Industrial Production
1
0.2-4.6-9.0-12.7-20.0-16.2-4.80.13.32.31.5-2.2-12.6-0.2Corporate Profits Before Taxes
2
-1.5-8.3-9.2-21.5-30.0-28.0-26.0-10.017.615.2-1.6-10.1-24.25.3Trade Weighted Dollar Index
3
70.371.076.179.482.583.386.589.086.081.573.379.489.085.0Unemployment Rate4.95.46.16.98.19.29.810.35.14.64.65.89.310.5Housing Starts
4
1.051.030.880.660.520.480.510.552.071.811.340.900.510.74Quarter-End Interest RatesFederal Funds Target Rate2.252.002.000.250.250.250.250.254.255.254.250.250.250.5010 Year Note3.453.993.852.252.713.203.403.404.394.714.042.253.403.70
Data As of: May 13, 2009
1
Compound Annual Growth Rate Quarter-over-Quarter
3
Federal Reserve Major Currency Index, 1973=100 - Quarter End
2
Year-over-Year Percentage Change
4
Millions of Units
 
I
NSIDE
 
U.S. Review 2U.S. Outlook 3Global Review 4Global Outlook 5Point of View 6Market Data 7
 
U.S. Review Economics Group
U.S. Review
U.S. Consumer Price Index
 Year-over-Year Percent Change-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%929496980002040608-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%CPI: Apr @ -0.7%
 
Furniture Stores Sales
3-Month Moving Average-25%-20%-15%-10%-5%0%5%10%15%20%25%939597990103050709-25%-20%-15%-10%-5%0%5%10%15%20%25% Year-over-Year Percent Change: Apr @ -13.4%3-Month Annual Rate: Apr @ -10.4%
 
(Continued from Page 1)
Automotive Cutbacks Will Pull Unemployment Even Higher
Retail sales also fell sharply at grocery stores, with outlays falling1.0 percent in April. The decline marks the third significant dropin sales in the past three months and has pulled down sales at foodstores to just a 1.3 percent gain over the past year. Food priceshave been moderating, which may explain part of this drop.Consumers are also becoming thrifty by shifting more purchases tostore brands and private labels. In addition, consumers are buyingmore groceries from warehouse clubs and discount stores.Spending in the more discretionary categories was weak prettymuch across the board. Sales at furniture stores fell 0.5 percent inApril, following a 2.3 percent drop in March. Over the past year,sales at furniture stores were down 14.3 percent. Sales atelectronics chain stores fell 2.8 percent in April, following a 7.8percent drop in March. For the year, sales at electronics stores aredown 11.9 percent. Clothing stores also had another tough month,with sales falling 0.5 percent. Sales also declined slightly atdepartment stores and non-store retailers.Consumers should catch a bit of a break in coming months. Energyprices remain well-below their year-ago level and food prices arefinally beginning to moderate. Lower prices for groceries andgasoline should put a few more dollars in consumers’ pockets andfree up some additional resources for discretionary purchases.In the near term, the weakness in retail sales pours cold water onthe notion the recession is ending. We continue to believe theworst is over but do not see the recession ending until this fall.Consumers simply do not have the wherewithal to increasespending in a major way. Unemployment continues to rise andcutbacks in the auto sector are just beginning to impact the data.Weekly unemployment claims rose 36,000 to 637,000 in the latestweek, with most of the increase due to motor vehicle plant layoffs.Cutbacks in the automobile industry will intensify over the nextfew weeks, as General Motors joins Chrysler shutting most of theirproduction facilities and notifying dealers their contracts will notbe renewed. We expect unemployment claims to surge to newcycle highs in coming weeks, as layoffs spread to suppliers andsupporting industries. Continuing unemployment claims postedanother large increase, rising to 6.5 million. The increase pushedthe insured unemployment rate to 4.9 percent, marking the tenthconsecutive weekly increase. The entire gain has shown up in theoverall jobless rate. The overall unemployment rate should risefrom 8.9 percent in April to 9.3 percent in May and there isconsiderable risk to the upside over the next few months.
Selected Current Data
2
Gross Domestic Product - CAGRQ1 - 2009-6.1%GDP Year-over-YearQ1 - 2009-2.6%Personal ConsumptionQ1 - 20092.2%Business Fixed InvestmentQ1 - 2009-37.9%Consumer Price IndexApril - 2009-0.7%"Core" CPIApril - 20091.9%"Core" PCE DeflatorMarch - 20091.8%Industrial ProductionApril - 2009-12.5%UnemploymentApril - 20098.9%Federal Funds Target RateMay - 150.25%
 
Insured Unemployed
As a Percent of Total Covered Employed1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%8688909294969800020406081.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%May-2 @ 4.9%
 
 
U.S. Outlook Economics Group
Housing Starts • Tuesday
Housing starts fell to an annual pace of 510K units in March, givingback most of the surprising strength we had seen in the Februarydata. Permits also dropped to just 513K units, an all-time low.Housing data are notoriously volatile in the winter months and allof the loss can be attributed to the also volatile multi-familysegment. The drop in permits to a new all-time low is moredisappointing, as declines were spread across segments.We expect starts will decline to an annual pace of 485K units inApril. However, it is still too premature to call an absolute trough.Starts may hover near the half-million unit pace during the firsthalf of this year, but should begin to slowly climb during thesecond half. We are probably two years away from seeing startsback above one million units, however, as we continue to strugglewith excess inventory and a deep recession.
Previous: 510K Wachovia: 485KConsensus: 520K
Housing Starts
Seasonally Adjusted Annual Rate, In Millions0.00.20.40.60.81.01.21.41.61.82.02.22.40102030405060708090.00.20.40.60.81.01.21.41.61.82.02.22.4Housing Starts: Mar @ 510K
 
Initial Claims • Thursday
First-time claims for unemployment insurance jumped for the firsttime in two weeks giving pause to discussions of potential “greenshoots.” The spike of 32,000 pushed the four-week moving averageup to 630,500, but is considerably off its high of 658,750. Recentnews of upcoming layoffs suggests more bad news may be in thepipeline so it is a bit premature to call the recent high a peak.Continuing unemployment claims rose again and the insuredunemployment rate rose another tenth of a point to 4.9 percent.The insured unemployment rate has been rising a tenth of apercentage point a week and that has matched up nearly perfectlywith the rise in the unemployment rate. The latest figures suggestthe unemployment rate will climb to around 9.3 percent in May.
Initial Claims for Unemployment
Seasonally Adjusted, In Thousands250300350400450500550600650700868890929496980002040608250300350400450500550600650700 Year-over-Year Percent Change: May-9 @ 69.9%Initial Claims: May-9 @ 637.0 Thousand4-Week Moving Average: May-9 @ 630.5 Thousand52-Week Moving Average: May-9 @ 516.1 Thousand
 
Previous: 637KConsensus: 625K
Leading Economic Indicator • Day
The Leading Economic Index (LEI) fell 0.3 percent in March, thethird consecutive monthly drop. Building permits, stock prices, andthe index of supplier deliveries made large negative contributionsto the index this month, more than offsetting continued positivecontributions from the money supply and the yield spread.We expect LEI will be significantly positive in April with help fromstock prices, the yield spread, and initial claims. The moneysupply, index of supplier deliveries and non-defense capital goodsorders should detract from the headline index. We continue toexpect an economic recovery to begin later this year.
Previous: -0.3% Wachovia: 1.2%Consensus: 0.7%
Leading Indicator Index
50607080901001108789919395979901030507095060708090100110Leading Indicator Year/Year Change: Mar @ -3.8%Leading Indicator Index: Mar @ 98.1
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