Archive for October, 2009

September Existing Home Sales

Friday, October 30th, 2009

The National Association of Realtors reported sales of existing homes were quite strong in September, recording a 9.4% rise.  At an annualized rate of 5.57 million units, sales were well above the consensus expectation, exceeding even the most optimistic forecast.  Both single-family and condominium sales had a strong and roughly equal jump, each exceeding a 9% growth rate.  One big concern surrounding this data point is the available supply which has some influence on the direction in which home prices move.  With roughly 3.63 million units currently available, the supply has shrunk substantially from 10.1 months a year ago to 7.8 months currently.  General opinion suggests a five to six month supply is “normal.”  Lower prices, on the other hand, do help drive sales so the 1.4% decline in the median price to $174,900 is likely as welcome to the purchaser as it is disappointing to the seller.  While we won’t argue against any good news, we remain somewhat uncertain about this improving trend’s durability.  Soft consumer sentiment, weak employment, stricter credit standards, rumors of a looming “shadow inventory” of pending foreclosures, and the possible termination of a government stimulus program to abet sales to first-time buyers will all weigh on future sales.  While Washington may extend the stimulus, the other factors must still play out in the fullness of time.  The next few months will need to be monitored carefully for signs that the strength seen in the last couple of reports continues to grow rather than begin to falter as seasonal factors also come into play.

September LEI

Thursday, October 29th, 2009

The Conference Board’s Index of Leading Economic Indicators rose robustly in September, up .9%, making this the sixth consecutive monthly increase.  The jump was above consensus, and at the high end of all projections gathered by the folks who do such things.  This report is made up of ten components and the improvement seen in September was driven especially by two of them.  The biggest came from the difference between the Federal Funds rate and the 10-year U.S. Treasury rate.  This is no great surprise since the former is almost zero, but it does indicate a continuing demand by large investors for our long-term debt.  The second greatest influence was stronger consumer expectations, generally seen as a monthly pole of attitudes expressed by the average man on the street.  We’ll see how that holds up going forward; some of the latest mid-month numbers measuring consumer sentiment have been turning soft.  The biggest weaknesses in the LEI centered on the length of the average work week, a point on which we have consistently harped, and lower building permits.  A companion piece to this report, the coincident index, having risen in both July and August by .1%, was unchanged in September.  Given that it had been declining steadily for many months prior, this seems to provide confirmation to the Conference Board’s own conclusion which describes the accumulating data as being consistent with a developing recovery.  As such, we will move the needle for this indicator up one notch to the eight-o’clock position.

Whispers and Shouts

Wednesday, October 28th, 2009

While those of us here at Atlas Indicators maintain that the daily gyrations of the equity markets can rarely be ascribed to any single cause, we also recognize that they are hard to ignore.  One driver of such volatility surfaces often enough that we can attach some of the blame to it: the quarterly earnings reports.  Most companies making up the S&P 500* operate on a fiscal year; they have their quarters terminate at the end of March, June, September, and December.  Since one compelling reason to own a stock is the belief that the company’s management will make better use of your invested dollar than you can, these quarterly earnings reports are eagerly awaited.  They can validate the faith placed in the management’s ability to produce, market, and deliver a product that will be sought out, or they may show disappointing results.  An army of analysts parse each company’s commentary, trying to guess the next quarter’s results in advance.  Much like sardines, analysts tend to gather together in tight schools of thought, each fearing should his projection both fall too far outside the norm and be horribly wrong, his resume will need freshening fast.  So we, the investors, get a consensus view of each company’s progress which is boldly announced in print and on TV, suggesting what the earnings will be when announced.  There is also a “whisper” number that is occasionally, but only briefly, discussed, consisting of rumors about various analysts’ true opinions should they be seen as falling too far out of line from that of his comrades.  The first two weeks or so after each quarter ends often sees subdued trading, disturbed only if such whispered numbers surface.  When the actual results are released, all the shouting you see in video clips of the exchange begins.  The action really gets going as each stock’s price adjusts to the published earnings relative to expectations, both overt and covert.  Those months that fall after the prior quarter’s end contain both the whispers and the shouts, often leading to the confusion and volatility at which we all wonder.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and cannot be invested into directly.

September Consumer Prices

Tuesday, October 27th, 2009

During the month of September, American consumers saw the overall price of goods rise by .2%, as measured by the Consumer Price Index report recently released by the Department of Labor.  A separate measure called the Core CPI, which omits food and energy prices, also rose by .2%, leaving both measures slightly above consensus expectations.  Looked at on a year-over-year basis, the larger headline index has actually declined by 1.3%, slightly less than the 1.4% decline we saw for August’s annualized numbers.  The core rate, on the other hand, is up 1.5% Y/Y.  This shrinking of the larger overall index creates a new dilemma for Washington.  Since cost of living increases for Social Security are tied to inflation as measured by the headline CPI, the negative annualized number means there will be no hike in 2010 for recipients of this program.  Some will actually see their checks shrink after next year’s Medicare premiums are deducted.  Given the rancorous debates about health care and other entitlement spending programs currently being wages across the country, the administration seems to fear this will just pour fuel on a fire.  Thus, President Obama is asking Congress to give some 50 million senior citizens an extra $250 to help tide them over.  The White House estimates the total cost will amount to just $13 billion in new deficit spending, a mere pittance when you consider the number of votes that are at stake.  Lucky for us children can’t vote.

September Industrial Production

Friday, October 23rd, 2009

On a year-over-year basis, September’s Industrial Production report showed good improvement after firming 4.3%, and causing the recession-induced contraction we have been enduring to shrink a bit.  Thus production is now down 6.1% annualized from minus 10.4% in August.  While some improvement was expected due to the surge seen as a result of the government’s Cash for Clunkers stimulus program, the gains were actually spread across a wide spectrum of manufacturing industries.  Overall, this component showed a gain of .7% for the month versus August’s 1.2% rise, which itself represents a strong revision from the .8% growth originally reported last month.  Mining output also rose, up .7%, while utilities registered a .7% decline.  Capacity utilization improved to 70.5%, now moving persistently up from the nadir of 68.3% seen just last June.  Both the production and utilization numbers exceeded the forecasts made by all 77 economists polled by Bloomberg.  Despite this surprisingly good news, the low rate of capacity utilization argues strongly against an imminent increase in hiring.  If unemployment numbers remain dire, consumer confidence and retail sales will likely stay soft as well.  The good news is welcome and shows a positive trend developing, but there remains a long slog ahead of us.  Still, with the results showing a continued acceleration, we feel the needle for this indicator should be nudged up a notch to the seven o’clock position.  Have you noticed we’ve been doing that more frequently of late?

Drop by Drop

Thursday, October 22nd, 2009

During the month of September, American consumers saw the overall price of goods rise by .2%, as measured by the Consumer Price Index report recently released by the Department of Labor.  A separate measure called the Core CPI, which omits food and energy prices, also rose by .2%, leaving both measures slightly above consensus expectations.  Looked at on a year-over-year basis, the larger headline index has actually declined by 1.3%, slightly less than the 1.4% decline we saw for August’s annualized numbers.  The core rate, on the other hand, is up 1.5% Y/Y.  This shrinking of the larger overall index creates a new dilemma for Washington.  Since cost of living increases for Social Security are tied to inflation as measured by the headline CPI, the negative annualized number means there will be no hike in 2010 for recipients of this program.  Some will actually see their checks shrink after next year’s Medicare premiums are deducted.  Given the rancorous debates about health care and other entitlement spending programs currently being waged across the country, the administration seems to fear this will just pour fuel on a fire.  Thus, President Obama is asking Congress to give some 50 million senior citizens and extra $250 each to help tide them over.  While that amount may seem like just a drop in the bucket, the White House estimates the total cost will amount to some $13 billion in new deficit spending, still but a mere pittance when you consider the number of votes that are at stake.  Luckily for them, children can’t vote.

September Retail Sales

Wednesday, October 21st, 2009

It comes as no surprise that retail sales declined in the month of September relative to August, falling 1.5%.  As suggested in our report of August’s results (see “Looking Under the Hood” in our blog archives at marketkapz.com), the government’s Cash for Clunkers program seems to have moved some sales that could have been expected to show up in September forward, contributing to the robust headline number in August.  Given this implied volatility, our attention then and now is focused more on the “core” retail sales number which excludes automobile and gasoline purchases.  They were seen as rising .6% in the original August report.  For September the improvement continues in evidence, up .4% for the month.  Both the headline and core numbers have proven stronger than consensus for two months now.  Still, year-over-year sales remain down 5.7%, although this shows a slight .1% improvement over the prior month.  While few are projecting a rapid return to robust retailing anytime soon, the upticks are most welcome, providing yet another light to guide our steps along the road to recovery.  Given this improving trend which is compounded in our view by similar action in some of our other indicators, we are moving the needle for Retail Sales up a notch from abysmal to seven on our indicators page.