Archive for August, 2009

July’s Industrial Production

Monday, August 31st, 2009

The Federal Reserve reported that industrial production in July increased by .5% as manufacturing, up 1.0% and mining, up .8%, were able to overcome the 2.4% drop experienced by utilities.  The manufacturing component was greatly aided by having General Motors and Chrysler come out of their short-lived bankruptcy and begin boosting production.  Strong evidence suggests this could continue for a month or more as the “cash for clunkers” plan appears to be boosting overall demand for new vehicles.  Year-over-year, industrial production has fallen 13.1%, a serious drop, but .5% better than the figure we saw last month.  Some economists will point to July’s increase as another sign the recession is coming to an end.  Others feel, given the one-off effect the government’s stimulus plan for junking old cars is currently having, that underlying growth is sluggish and will probably remain so since today’s purchases, somewhat artificially induced by a one-time exogenous factor, may rob from future sales as eager buyers look to unload their expensive-to-maintain vehicles today while the government is still incentivizing them.  Also showing a slight strengthening within this report was the data regarding capacity utilization.  Rising .4% to 68.5%, it suggests sales may be picking up.  An increase now, while unemployment remains high and may even continue to deteriorate, likely equates to stronger corporate profits when the third quarter numbers are announced next October.

July’s Consumer Price Index

Friday, August 28th, 2009

The Labor Department’s headline Consumer Price Index was unchanged for the month of July, after rising a robust .7% in June.  Falling food and energy prices led to the stasis, and also help explain why the core CPI, which excludes both of these categories, managed to muster a slight .1% gain.  Year-over-year the headline number is now contracting at a negative 1.9%, picking up a bit of momentum relative to June’s 1.7% drop.  The annualized core rate also came down, off just .1% from June, to a positive 1.6% seasonally adjusted.  The weak headline number probably encourages the Federal Reserve to maintain their quantitative easing regime.  The declining core rate, even while staying within the desired target range the Fed has described of 1% to 2% growth, points to an economy that remains weak, thereby encouraging the current low federal funds interest rate to stay somewhere between zero and 1/4%.

Leading Economic Indicators for July

Thursday, August 27th, 2009

The Conference Board’s recently released figures for July’s Leading Economic Indicators shows a .6% rate of growth. While hardly robust, the reading did come in close to the top of the range of consensus expectations. This month’s release, a composite of the ten economic data points that the Board compiles into their monthly report, would make a scatter gram look organized with six up, three down, and one flat. The factory workweek rose a little; consumer expectations dropped. Rising interest rates were a plus; money supply was a negative, and so on. Still, it has been rising for four consecutive months now. Another component of the report, the coincident indicators, was unchanged, marking the first month since last October that it didn’t register a decline. Is this cause for celebration? The Conference Board feels there are signs the painful recession we have been enduring has begun to bottom, allowing a recovery to start soon. I’m sure most all of us hope they are right.

July Supply Management

Wednesday, August 26th, 2009

For July, the ISM manufacturing report continued to retract, but the rate of decline abated substantially, rising 4.1 points to 48.9 from June’s 44.8 reading. Anything below the neutral point of 50 shows evidence of shrinkage, but there is plenty of good news to be found within the report. New orders registered a huge jump, up 6.1 for the month to 55.3, a level some might even consider robust. Production, the only major positive from last month, continued its march into positive territory, gaining 5.4 to 57.9, also a very respectable reading. Order backlogs, up 2.5, hit the neutral 50 point level. Inventories, still quite low, gained 2.7, and are now ensconced at 33.5 points. Even employment had a positive showing, up 4.9 to 45.6, though admittedly still negative. The most worrisome component was inflation as measured by the report’s prices paid element which rose 5 and now resides at 55.0 points. Remembering that this indicator bottomed last December at 32.9 points to just how much better things are beginning to look. While still negative overall, the component parts offer growing support to the green shoots thesis. We’ll see if the equity markets substantiate this trend going into the summer months.  Meanwhile, the ISM’s non-manufacturing report was off .6% to 46.4% (making this the tenth monthly decline in a row) and had very little positive underlying data.  This is especially significant since 80% of America’s 140,000,000 workers are covered by this data.  One component of the report, prices, fell over 12 points, providing strong evidence that slack demand equates to little pricing power by vendors.  Substantiating this obvious sign of weakness was the decline in the business activity index of almost three points as employment fell almost two and new orders were off half a point.

Blind Turn Ahead?

Tuesday, August 25th, 2009

The Economic Cycle Research Institute’s Weekly Leading Index continues to rise, causing its annualized growth rate to post a 26-year high of 17.5% for the week ending August 14.  They feel we are seeing the beginnings of robust growth in the global industrial sector as the world-wide recession comes to an end.  Their managing director, Lakshman Achuthan suggests the global engine is restarting “and that lift is supporting the business sector,” adding, “It is high time to break from the herd of pessimistic analysts who will continue to bemoan economic weakness long after the Great Recession is history.”  They indicate this recovery is just starting to manifest and may be stronger than any we have seen since the early 80’s.  Interesting, while most pundits are still waiting for clear signs of growth from the consumer side of the equation, the ECRI indicates this will be a different breed of recovery, one led first by businesses improving.  If they’re right, the majority, once again, will be blindsided.  This time though, the current investor, properly placed, may be the biggest beneficiary.  Our role here at Atlas Indicators to to do our best to facilitate that placement.

Queasy Come, Queasy Go

Monday, August 24th, 2009

Every month the U.S. Treasury releases a report called the Treasury International Capital which measures, in part, how much demand for U.S. assets comes from foreign sources.  Four large investment classes are followed: Treasury securities like T-bills and bonds, Agency securities like Ginnie or Fannie Mae, corporate bonds, and corporate stocks.  Given the recent talk by some of our larger trading partners expressing their concern our huge stimulus programs might devalue the dollar, this report has taken on added significance.  Further, with May data showing international sources had actually dumped about $19.4 billion in domestic securities, there seemed to be some teeth behind their bark.  June’s data showed quite the reverse to be true, with a record for the year-to-date demand of $90.7 billion.  Perhaps even more reassuring, the buying was centered around U.S. Treasury obligations; corporate bonds actually showed a slight decline.  China, one of the nations leading the jawboning against what they see as our profligate ways, reduced their holdings of our debt, but the Japanese upped their stakes and now hold some $711.8 Billion in our securities.  Interestingly, the report’s robust bottom line includes an offset of $32.9 billion spent by local investors for foreign securities.  Since the global financial meltdown felt earlier this year seems to be congealing quite rapidly, the demand for our assets may reflect less of a queasy reaction to those tumultuous times and more a vote of confidence in a potential global recovery.

It’s Not Magic

Friday, August 21st, 2009

Every day we see or hear reports detailing how much the stock market has moved either up or down based on the performance of an index such as the Dow Jones Industrial Average.  Opinions as to the whys and wherefores are delivered with an air of authority, only to be overturned by events often just a short time in the future.  Why do markets rise?  Is it some form of levitation perhaps?  How can the market rise and your stocks drop?  Witchcraft?  To dispel some of the superstition we must first remember that we are talking about a market for stocks, not some jellied whole that magically marches in lock step.  Each issue has its own reasons for the price fluctuations we see.  Here at Atlas Indicators we follow the daily volume of both the individual positions we monitor and of the indexes as a whole.  We watch to see where the weight of opinion falls as stocks are bought and sold.  We then employ these up and down volume statistics various ways, adjusting positions in an attempt to stay just ahead of trends.  We also track the percentage of bulls and bears among recognized investment advisors.  Currently the bulls are at their highest percentage for the year while bears, according to Investor Intelligence, are approaching a five-year low.  We can only hope that the majority will be right for a change.  Contrarians are starting to salivate though, seeing this as one sign a top of some sort may be building.  And it is just such opposing impressions of where reality lies that makes any show of prestidigitation so fascinating to watch.