Economic Data Shows Struggling Economy, Not Recession By Vincent Farrell Jr. 5/15/2008 12:04 PM EDT

Unemployment claims came out, as they do every Thursday, and initial claims rose a bit to 371,000. The four-week moving average edged down to 365,750, still well below the 400,000 mark that would be coincident with 0% GDP. If your only guide were claims, you would guess the current quarter would grow about +1.5%.

Industrial production fell 0.7%, a bit more than expected, but not so bad as to be a market mover. The two reports together point to a struggling economy, but not a recession.

The news "across the pond" was a good bit better, as the flash report for first-quarter GDP for the Eurozone showed a better-than-expected rise of +0.7%. This is still a sluggish reading, but it was led by a strong Germany being up 1.5%. France recorded a positive +.6%. The two countries account for about half of the GDP of the region.

The estimate for the Consumer Price Index (CPI) was as expected at +3.3%, down from the prior month's +3.6%, but still above the targeted 2% rate. Even though Germany is strong, other parts of the Eurozone are struggling due to the credit crunch, and leading indicators and consumer sentiment are both slipping. Nevertheless, this report will reinforce the ECB's reluctance to cut interest rates.

Union Bank of Switzerland raised its crude oil price forecast to $115 for 2008, and Bernstein to $100 (from $92.) My favorite international idiot, Hugo Chavez of Venezuela, says the U.S. Fourth Fleet is threatening his country, and if we invade, oil will go to $500 a barrel.

In the real world, non-OPEC production of oil has been slipping. This is because 80% of the growth of non-OPEC has come from Russia. Post the collapse of the Soviet Union, the oil industry was in shambles, so for the past seven years or so, it was relatively easy to renew fields that had fallen into disrepair. That game is played out, and while Russia has enormous reserves, vast capital will be needed to exploit the opportunity. That is not likely with the current tax structure and questions about the rule of law.

The government levies a duty of 65% says The Economist magazine on prices over $25 per barrel. "Add to that various corporate, payroll and production taxes, and the state creams off as much as 92% of profits." (The Economist, May 10)

When you figure that Putin and his gang of unholies are in charge, who would risk precious dollars for 8% of the profit? No relief likely from non-OPEC sources.

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Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.

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