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April 13, 1990
Though trading has been quiet in this holidayshortened week, we have more good news for interest rates.
This morning's release of the March Producer Price Index was a surprise .2% drop; estimates had looked for a gain. Falling energy prices created most of the surprise, but the core rate improved a good deal also.
Retail Sales fell for the second consecutive month, down .6% in March, and against expectations of an increase.
Oil prices cascaded down in the face of excess inventories, OPEC overproduction, and a Saudi Arabian discovery of what may prove to be the largest oil field ever found. Though oil may hold at prices in the midteens for quite a while, some of this price improvement is traceable to a temporarily strong dollar.
Just as most recessions are a cumulative result of many forces, recession indicators are often tidbits of news pointed in the same directionŠ.
The Moody's credit rating service downrated four times as many companies as improved in the first quarter of 1990. Downgraded were 95 corporations with $75 billion in debt outstanding, against 23 improvements. Corporate profits in general have performed miserably.
Bankruptcy filings surged 34% in the fourth quarter of 1989, led by S&Ls, construction firms, banks, and retail companies.
The advertising revenue performance for newspapers is downright dismal. 1989 was the first year in a long time in which ad revenue did not keep up with inflation, and 1990 looks worse. The economy is visibly weaker, and first quarter inflation fears did not allow for good luck. The Greenspan Fed has eased at this moment several times in the last three years. This time, remembering its latest easing mistake in December, the Fed may stand pat, and let the recession happen.
Politicians are already blaming bank regulators for a credit crunch. They are also blaming high interest rates on the S&L bailout requirements. Pols say borrowing requirements by eastern Europe will drive rates up. And a quorum in Congress says the Japanese won't buy our bonds, and rates will stay high. And, of course, without new taxes, rates are sure to rise.
Br'er Greenspan should feel mighty comfortable in a briarpatch like that. If he can just keep his hands off the tarbaby, we can get the recession over with.
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