The news, on the economic front anyway, is not exactly sparkling. Manufacturing in the U.S. is slumping. Consumer prices are headed down because that's the only way that retailers can get stuff moving. And through it all, equities are rising and bond prices are going down.
Maybe somebody missed Friday's economic numbers.
On Friday, the U.S. Commerce Department told us that U.S. industrial production slumped by 1.1 per cent in the month of October. That was the thirteenth decline in a row (and the sharpest dip in eleven years) for this benchmark of the manufacturing sector. The market was looking for a dip of 0.9 per cent in this indicator.
After last week's decrease of producer price index data, we got another deflation indicator Friday. In the old days, the release of the U.S. consumer price index used to be called an inflation indicator, but that was then.
Friday morning we learned that the index was down by 0.3 per cent during the month, just as the market expected. The core index, which excludes food and energy prices, inched up by 0.2 per cent, compared with an expectation of no change on the month. On a year-over-year basis, the U.S. all-items index was up by 2.1 per cent, while the core index rose by 2.6 per cent.
Here's what all those numbers mean.
There is little or no pricing power in the U.S. right now. The October price figures show precipitous dips in consumer prices, as well as declines in many consumer product areas. Airline fares and hotel rates, not surprisingly, were down sharply. As for the hint of core price pressures, they are unlikely to last. As we move closer to the holiday season, all signs are that "value" (read lower prices) will be front and center in the selling game.
Now, here's how the theory works.
A soft economy, low price pressures, a lack of business confidence-all of these things are supposed to be bad for equities and good for bonds. So what's with the markets reaction this week, when things look like they'll end up exactly the opposite way?
Well, earlier this week there were some better economic figures, notably a surprise surge in October retail spending. Not only that, but the military news seeping out of Afghanistan has been gratifyingly good. So that's what the market is seeing, and it does not want to see anything else.
It may turn out that the optimists are right, but it's not exactly a done deal yet.
We get a slew of economic data next week.
Stay tuned.
Linda Nazareth is ROBTv's resident economist.