Markets and the Economy | Week of October 17, 2011

Below is the most recent Economic Review from JPMorgan's Chief Economist, James Glassman.

Markets and the Economy | Week of October 17, 2011

THIS WEEK

• Forecasters are looking for an improvement in new home construction and more declines in jobless claims.
• The spring flurry of price increases is passing, as energy prices retreat. Inflation readings are a reminder that not all price changes are about inflation. Price changes are about relative prices and not inflation, if they are not supported by robust aggregate demand.
• Manufacturing production likely rose at a moderate rate in September.

FOCUS: Consumer Spending Gains to Quicken

• The economic news since Labor Day has been pointing to a quickening in the pace of the US economy, counter to the pessimism that permeates national mood. How can that be a surprise, with monetary policy very friendly, inflated housing values now history, the global economy mending, and businesses enjoying record profitability and booming capital investment evidence that they get the message?
• Recent impressive strength in business capital spending, motor vehicle production, exports, and housing related activity comes from esoteric reports and might not be so visible. It is hard to ignore the quickening in the pulse of the consumer, however, that is visible in the latest retail sales figures.
• It might be tempting to dismiss this news as an aberration, because it doesn’t square with the popular story. Still, it isn’t a surprise that the consumer spending pace is quickening, with the shocks that squeezed household budgets this spring passing. The return of the consumer in the third quarter is just the first step. An even better fourth quarter is in store, thanks to the relief at the gasoline pump seen in recent days.