Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – January 26, 2017
The major averages enter the final hour about even on largely disappointing data. The Chicago Fed National Activity Index gained .41 to +.14 December, the 3-month moving average improved to -.07 to record a 16th consecutive month in the red as the period of sub par economic growth continues.
The Kansas City Fed regional index was unchanged in January at 9. Production increased slightly as employment slipped in the Tenth district.
The big news today is the 10.4% decline in the new home sales index as it hit a 10-month low. An early sign that higher interest rates are catching up to real estate. Due to the escrow process I would expect existing home sales to suffer a similar fate soon. That said new home sales are much more economically significant because of the related construction activity. Decembers decline pushed sales down to 536,000 units annualized. Weakness was notable in the Midwest and South, months’ supply increased to 5.8 while the median price advanced 4.3% for the month to $322,500, 7.9% higher than a year ago.
The latest example of economic policy double speak that has become the hallmark of Washington and the media is the idea that you can slap an import tax on oil, this will in turn increase the price sparking a domestic shale oil renaissance leading to a virtuous cycle of higher oil prices, more jobs and greater tax revenues. The very same report that promotes this idea also notes that a sharp decline in oil prices is likely due to a glut of oil on the market. The very same glut that caused oil prices to fall sharply beginning in late 2014. If prices plunge will just go back to importing the stuff and the import tax will prove self defeating. This is the problem with tariffs and protectionism, for each action there is an equal and opposite reaction. Anyone who thinks that actions can be taken in a vacuum without consequence or reaction as the author of the Goldman Sachs report seems to think isn’t very smart and obviously hasn’t studied history. The Smoot-Hawley Tariff act of 1934 was instrumental in a 30% collapse in trade and prolonging the Great Depression.