Archive for September, 2009

Some Like It Tepid

Wednesday, September 30th, 2009

Industrial production, as reported by the Federal Reserve, rose for a second month in a row, showing a strong .8% increase.  The July figure was doubled from the original estimate, and is now showing a 1.0% rise.  Manufacturing was up .5%, utilities rose 1.9%, and mines advanced their output by .5%.  While the government’s Cash for Clunkers program did have a positive effect on the totals, especially in regards to July’s revisions, strength was seen in other manufacturing components of the report as well.  These signs of strengthening are welcome, but we must remember that year-over-year industrial production remains down 10.7%, despite improving 1.7% from July’s annualized decline.  Of at least equal interest in this report is the figure showing capacity utilization at 69.6%, a gain of .6% for the month.  Again, to put this in context, the average utilization rate for the last 35 years or so hovered around 81%.  The current shortfall leaves plenty of room for industry to increase output without setting inflation’s influences a’smoldering.  This implies interest rates can remain at their current levels or even a tad lower for quite some time.  Any recovery we might hope for in housing sales, both new and existing, may benefit from this as well.  Further, higher production should lead to increases in take-home pay and subsequently provide a bit of a boost to retail sales.  All around, this report provides a lot of news we here at Atlas Indicators consider somewhat above tepid, if not actually good.  Were the figures too robust, fears of inflation would probably lead to higher interest rates sooner than anyone, except perhaps your banker, would like.

Dead Men Don’t March

Tuesday, September 29th, 2009

The current $8,000 tax credit available to qualifying first-time home buyers is deemed quite a success.  Congress, now fearing the consequences when the stimulus ends in November, is considering extending, possibly even expanding, the benefit.  The IRS has posited this program may cost, just in its present form, about $14 billion.  Now Congress, in the interest of revenue neutrality, must find a way to pay for it.  One possibility being mooted would be simple to implement.  All they would need to do is extend the current estate tax for one year.  Interestingly, next year is the only year when this particular tax on your ability to leave money to heirs goes to zero.  Call me cynical, but I’ll wager dollars to donuts, somewhere at least one wealthy individual is hooked up to a battery of machines that keep him or her technically alive.  Sure, it’s expensive, but it will be worth it in just three more months.  Then they can be allowed to rest in peace.  But Congress could mess up these best laid plans.  And the dead won’t complain.  You’ll never hear of the million dead-man march.  Actually, it probably would all be for the best if Congress did do the extension.  It would remove any temptation to act in a manner others might find reprehensible while allowing more who are living to tap into someone else’s estate in order to finance a house.  Is this a great country or what?

Don’t Short the ECRI

Monday, September 28th, 2009

The Economic Cycle Research Institute reported their Weekly Leading Index rose to 125.4 for the week ending September 11th.  Impressively, given that they have been compiling and reporting data since 1967, the growth rate of this index is now at an all-time high of 21.3%.  Their Managing Director Lakshman Achuthan has made some bold forecasts lately.  He went on record a few weeks ago stating there would not be a double-dip recession.  Now he boldly asserts, “We expect non-manufacturing employment–which is where 91 percent of us work–to be positive by year end.  We are talking about recovery that includes jobs growth in the non-manufacturing sector, and we are talking about a recovery that includes increases in consumer spending.”  Historically, the ECRI’s track record has been one of the best in the industry and their opinion is followed with great interest by many in the investment community.  They may sound like a lone voice in the wilderness right now, but I wouldn’t sell them short.

Mixing It Up

Friday, September 25th, 2009

The Institute for Supply Management announced their manufacturing index blew through the neutral 50 point level in August, settling at 52.9 and signaling economic growth might be taking root.  New orders were especially strong, posting 64.9, a 9.6 point jump.  Production gained 4 to reach 61.9, while order backlogs expanded by 2.5 to 52.5 points.  Manufacturers continued using up inventory, which posted 34.4 for the month, albeit up slightly from July’s 33.5 reading.  Delivery times slowed markedly, suggesting these tight inventories are beginning to obstruct recovery.  For businesses that can often mean lost sales, and hints at orders to replenish stock may be on the near-term horizon.  Prices paid soared 10 points to 65.0, an additional sign tight inventories may soon lead to some critical shortages.  Employment, likely to remain a laggard for quite some time, was up slightly but remains low at 46.4, pointing to a continuing decline in hiring.  The ISM’s non-manufacturing report remains mired in negative territory, although the headline reading did improve 2 points to 48.4, suggesting  business conditions weakened a bit more in August for the service sector of our economy.  This is significant, since service industries represent the lion’s share of workers.  Underlining this fact, employment posted a weak 43.5 reading despite improving 2 points for the month.  New orders remained weak, but barely, at 49.9.  Elsewhere we saw signs of strength.  Business activity jumped over 5 points to climb into positive territory at 51.3 while prices soared 22, reaching a high reading of 63.1.  Since energy prices were virtually flat for the month, we take this as further evidence of a building shortfall in supplier’s warehouses, a possible source for strong demand in the near future.  Given the mixed message from these two reports combined with what we are seeing as a bias toward improvement, we are moving the needle for this indicator up another notch to the eight-o-clock position.  Visit us at atlasindicators.com for more insight into our current view of the developing global economic frontier.

Looking Under the Hood

Thursday, September 24th, 2009

The Commerce Department reported retail sales jumped substantially in August, up 2.7%, well ahead of all but the most bullish projections.  As expected, auto sales were the primary contributor to this increase as the Government’s stimulus plan for car sales took hold, and rising gasoline prices abetted the hike.  Still, year-over-year retail sales remain negative, down 5.3%, although this is better than the 8.5% drop we saw in July.  Excluding automobile and gasoline sales, two notoriously volatile components of the headline number whose combined effect has been exacerbated by the recent Cash for Clunkers program, core retail sales, up .6%, reversed the decline seen last month.  Gains were found in most categories not somehow tied to housing.  For instance, food and beverage sales rose but furniture and home furnishings declined.  July’s negative numbers are more than offset by these positive results, and excluding a horrible report for September, which we here at Atlas Indicators do not expect, more talk of the current recession’s end will likely fill economic analyst’s commentary.  While we expect the surge in auto purchases seen this month will have moved some sales expected to come over the balance of the year forward, likely removing them as a source of future strength, it is quite possible the end of this horrible recession we have been enduring is in sight.  We will watch for the third quarter’s GDP report sometime in October to see if relief is near.

National Repossession

Wednesday, September 23rd, 2009

The U.S. Treasury announced our nation’s deficit stood at $111.4 billion for the month as August ended. This is actually about half a billion less than August of last year, but the Congressional Budget Office seemingly suggests some accounting legerdemain must be involved since they say the deficit actually increased by $50 billion over the same period of time. What is certain is that our fiscal year-to-date shortfall is now $1,378 trillion against a mere $500.5 billion last year at the same time. As most home owners know, budget discipline must ensure you spend less than what is earned or you might eventually lose your home. Washington, with all the stimulus programs, has managed to increase spending by 18.6% this fiscal year, but the recession has slowed receipts by 16.2%. Fortunately for us, no one can repossess a nation. Can they?

Dollar Doldrums

Wednesday, September 23rd, 2009

The value of the U.S. dollar as measured against a common basket of foreign currencies was fluctuating in a narrow range marked roughly by boundaries between $.80 to $.81 when we last discussed it on our Atlas Indicators website. We said any evidence that our currency was beginning to strengthen would be met with the appropriate action; lacking that, we would keep our indicator pointing straight down and invest accordingly. The trading range was broken to the downside recently, and the dollar is now approaching a low point around $.76 on our chart, a level where it found a modicum of support about a year ago. It may hold here, or continue down further to the lows around 72 cents seen two years ago. We don’t try to determine any absolute price point as a target. Rather, we try to ascertain the trend, either up or down, and benefit from it. Further, we ask what is driving the trend and what could reverse it. Here is where we find things become foggy. Prevailing thought suggests the decline is caused by America’s profligate spending for domestic stimulus and foreign wars. Our needs are met by constantly increasing our borrowing, driving down the world’s faith in our ultimate ability to service and repay this debt. A great theory, but one which fails to explain why our huge Treasury Department’s auctions continue to be meet with substantial global demand. It seems unlikely countries who believe we are about to fail would loan us money for thirty years at interest rates well below 5%. But if the dollar continues to fall, who is it that’s selling? We see no visible footprint as of now. What to do? We’ll continue to ride the trend, remaining ever mindful that significant data could be forthcoming at any time. When we see it, you’ll be the first to know.