Archive for July, 2009

The Goods on Durables

Friday, July 31st, 2009

The Commerce Department reported that new durable goods orders fell in the month of June, the first drop after three monthly increases, down 2.5%, and bringing the year-to-date decline to a seriously negative 26.8% rate.  Making matters worse, the May figure was revised down one-half percent, although it still registered a positive 1.3% increase.  Weakness was attributable primarily to declining orders for communications equipment and transportation, although the latter saw a steep drop in non-defense aircraft offset substantially by an increase in defense spending.  On the brighter side, the core number, which excludes both defense spending and aircraft, two volatile components of the whole, rose a healthy 1.4%, following on May’s 4.3% increase.  This figure is considered by many economists to be a proxy for future business investment.  If confirmed, it will represent a marked turn from the extraordinary 44% plunge experienced in the first quarter of this year.  Still, both shipments and inventories continued to decline, albeit at a somewhat slower pace.  Since some of this data will be used to derive our GDP totals for the second quarter, this continued weakness is one factor pointing to a further drop in our nation’s output.  Hopefully, the slowing pace of decline and possible positive turn, no matter how slight it may be at the moment, could be suggesting better results in the second half of the year.

Federal Proclivities

Thursday, July 30th, 2009

The Federal Reserve recently released the minutes of their Federal Open Market Committee meeting held in late June. They describe the Fed’s expectation for our economy to improve gradually over the next year and a half, although the final real GDP figure is expected to remain negative in 2009, turning upward as 2010 progresses, although at a somewhat sluggish pace. Unemployment is expected to peak at the upper nine percent level, possibly even reaching into the low tens. Potential inflationary pressures were discussed and the minutes read “ensuring that policy accommodation can ultimately be withdrawn smoothly and at the appropriate time would remain a top priority of the Federal Reserve.” But they seem to be more worried about the current fragile condition of the economy than any incipient inflation since they don’t appear set to turn off the printing press just yet. “If the Federal Reserve’s backup liquidity facilities were terminated prematurely, such developments might put renewed pressure on some financial institutions and markets and tighten credit conditions for businesses and households.” The net conclusion we reach here at Atlas Indicators is to expect little change in interest rates or government spending for the foreseeable future.

How to Bury a Hole

Wednesday, July 29th, 2009

The Treasury announced our budget shortfall for June was $94.3 billion, bringing the year-to-date total deficit to a negative $1.1 trillion. By comparison, this time last year we were in the hole by $285.9 billion. While that seemed like a lot then (and it was), it pales by comparison to today’s totals. Given that we are but nine months into the government’s fiscal year, this hole we’re digging will definitely grow; consensus expectations are for us to end the year down about $1,8 trillion. There are two major reasons why we are seeing this accelerating deficit. First, the current recession is causing a huge drop in tax receipts. The inflows so far this year are off by 17.9%. Second, the government is spending like crazy in an attempt to stimulate the economy. June alone saw special outlays to boost housing and other sectors of the economy totaling $25.1 billion. Now there is talk of adding a second stimulus package to the first. The way I see it, economists at the White House believe the hole we are in is the result of poor confidence manifesting throughout our society as a lack of robust spending. To re-ignite the desire to spend, the government must step in first, spending borrowed funds to boost demand until it erupts in some sort of spontaneous combustion, spreading across America’s households. So their approach can be boiled down to this: We can get rid of this hole into which our economy is sinking by making it bigger. It may, however, prove difficult to bury a hole by digging it deeper.

Expatriated Dollars?

Tuesday, July 28th, 2009

Foreign banks and investors were net sellers of U.S. securities in May, according to the latest report from the Treasury Department. The total decline measured -$19.8 billion. Lower levels of Treasury holdings by both Japan and Russia accounted for some of the drop. Interestingly, since the report is a net measure of inflow and outflow, we also saw a big increase in purchases of foreign securities by residents here in the U.S., which actually accounted for a healthy portion of the overall drop. Also of some significance, given their recent rhetoric about the questionable effect all our economic stimulus packages may have on the dollar’s value, was the contribution from China to the final totals. Here we see a large increase in their holdings of our assets. Apparently any concern Beijing harbors about the viability of our dollar isn’t cooking on the front burner there yet. Do the Chinese actually have more confidence in the future of America than we do?

June Leading Economic Indicators

Monday, July 27th, 2009

The Conference Board released its June posting for their Index of Leading Economic Indicators on July 20, and it continues the trend of seemingly good news we have seen developing over the last couple of months.  Up +0.7% for the month, the LEI is building on gains of +1.2% seen in May and +1.1% registered by the April data.  Part of the gain came from higher interest rates which, as I mentioned in last month’s commentary, may be taken as either a plus or a minus.  But a slight drop in jobless claims was reported this time, and that is a definite positive, as was an increase in both building permits and stock prices.  Declining consumer confidence was the biggest negative seen in this release.  Still, the persistent positive bias in recent reports we are seeing here at Atlas Indicators leads us to raise the needle for this data series one notch to 7.

June Retail Sales

Friday, July 24th, 2009

Retail sales jumped +0.6% in June, but there was little else in this report from the Department of Commerce to get excited about. Year-over-year the figure is still quite negative, down -9.0%, as the consumer retrenches. Further, when we look at core retail sales (the total after eliminating motor vehicle and gasoline sales), we find they actually dropped -0.2%. A detailed examination of the components making up this report suggests some interesting trends. For instance, restaurants saw a decline in sales. Electronics, sporting goods, and book stores saw a rise. Are folks eating at home more often, reading, playing video games, or actually going out and getting some exercise? Is the family starting to get reintroduced? It’s too soon to say, but what a dramatic shift that would be!

June Consumer Prices

Thursday, July 23rd, 2009

Consumers saw a strong +0.7% increase in the price of purchases they made during June as measured by the headline Consumer Price Index. The increase came as no surprise since it matched the consensus expectation. Further, the year-over-year number declined a bit from May and is now down -1.2%. Energy costs were the primary contributor to this month’s hike. The core CPI tells us a slightly different story. While it increased a scant +0.2% in June, the Y/Y change remains positive at up +1.7%, although this is a drop of -0.1% from May. With energy prices currently reversing to the downside, we may see some of the upward pressure come of this data point. But even if this trend continues, those factors influencing the core’s increase will cause some concern to the inflation conscious should they continue. And that, in turn, may apply some upward pressure to interest rates.