First the good news on the economic recovery that everybody loves to hate:
Retail sales totally beat Wall Street estimates with a huge 1.3 percent gain in November. Core retail sales have increase 5.6 percent at an annual rate over the past three months. Family net wealth has rebounded $5 trillion over the past six months. Jobless claims keep trending lower. Business sales, up 1.1 percent in October (the latest data), have jumped 10.1 percent annually over the past three months. And business inventories, led by manufacturing, also rose in October.
The data suggest that fourth-quarter real GDP could come in at 4 percent or stronger. And the powerful rise in business sales -- leveraged off big productivity gains -- suggest a very strong profits picture.
Profits are the mother’s milk of stocks and the economy -- the only true form of stimulus. Profit naysayers argue that only severe cost-cutting and downsizing have led to better earnings. But the rise in business sales spells top-line revenues, a very positive sign.
These recovery signals should put some pressure on Helicopter Ben Bernanke to stop his free-money policies at the Fed. So should November import prices, which rose 1.7 percent. Driven by the declining dollar (until recently), import prices have increased in eight of the past nine months for a 10.1 percent pace.
Economist John Ryding points out that import-price trends are closely related to consumer-price trends. The message? Inflation is going to pop up in 2010.
Of course, nobody knows if Helicopter Ben will begin tightening sooner than expected. But if he listened to market-price signals -- like the sinking dollar and soaring gold -- he’d be a smarter Fed chairman.
No, all is not rosy on the economic scene. Besides the inflation threat, tax rates are going up in January 2011.Congress wants to raise the capital-gains tax on investor partnerships and elevate the death tax for inheritance. Both will suppress capital formation and entrepreneurship. So will Democratic plans to raise the top personal tax rate as high as 45 percent. This is another attack on the capital and investment necessary to finance new and existing businesses.
President Obama wants a zero cap-gains tax rate for small-business investors. That’s good. But it’s a small incentive compared to the tax hikes on the table.