Archive for December, 2009

November Industrial Production

Thursday, December 31st, 2009

The Federal Reserve reported our nation’s industrial production in November rose 0.8%, a touch stronger than consensus expectations.  The October figure, which originally was said to have increased by 0.1%, was revised down by that same amount to show no change over September.  Utilities, which had shown a large weather related jump in October, fell 1.8%.  Mining was up 2.1%, reversing a decline seen last month. Manufacturing was strong, rising 1.1%, an especially robust showing after October’s 0.1% gain was revised to a 0.2% drop.  Both durable goods and non-durables had a strong showing, up 1% and 1.1% respectively.  Industrial production has been digging itself out of a very deep, recession induced hole, and is now down year-over-year by 5.1%, a full 2% improvement over October, and substantially above the lows around minus 13% seen in May and June of this year.  Capacity utilization also continued improving, hitting 71.3%, an increase of about one-half percent for the month.  Given the rate at which this data point has been improving, we are moving the industrial production needle up a notch to 8 o’clock.  If the numbers continue to climb, we should soon see it reflected in other indicators like lower unemployment and rising retail sales.

November New Home Sales

Wednesday, December 30th, 2009

The Commerce Department’s report on new home sales in November was as great a disappointment as the National Association of Realtors’ existing home sales report for the same month was powerfully positive.  Not only did sales plunge by 11%, but negative revisions were also posted to September and October as well.  The supply of new homes, at just 235,000 nationwide, while it represents a heavy 7.9 month supply, is at the lowest level seen since back in 1971.  Some good news could still be found in the report which showed a firming of prices; the median cost of a new home was up 3.8% to $217,400 and is now down year-over-year a meager 1.9%.  Despite the dour nature of this release, hope for the future is to be found in the expansion and extension of the government’s home buyer’s stimulus program, especially in light of the robust existing home sales data.  We will be very interested in next month’s figures to see if this report is a singular outlier or marks the beginning of a more sinister trend.  Our guess is that future months will show a more positive trend continues to build.

November Existing Home Sales

Tuesday, December 29th, 2009

The National Association of Realtors released a very strong report detailing sales of existing homes in November.  At an annualized rate of 6.54 million units, the total was up 7.4%, well above the most optimistic projections.  Remember, this adds to the robust 9.9% surge we saw in October.  The current supply is now down to 6.5 months, a level that begins to touch the top border of what is considered to be a healthy range between five and six months worth.  Accordingly, we are moving our needle for this indicator up another notch, further into positive territory.  There are plenty of other reasons to substantiate our optimism.  Sales exhibited strength across all regions of the country.  Year-over-year single-family home sales are now rising at a 42% rate while condominium sales are soaring at a 60% Y/Y clip.  The current inventory of existing homes has fallen to a 3 1/2 year low.  Prices, while still down on an annual basis, rose 0.2% to a median $172,600 on November and are off a scant 4.3% annualized.  No doubt at least some of the credit goes to stimulus programs initiated by the government which were scheduled originally to end in November.  Many of the sales may have been initiated earlier than would normally have been the case, thereby getting captured by this data, as buyers availed themselves of the credits before expiration.  With this stimulus program now both extended and expanded, we anticipate another wave of buyers could take advantage of it in the near future, although it may take a couple of months for all parties involved, buyers, agents, lenders, and so forth, to get ramped up again.  We’re hopeful that more good news is yet to come.

Dollar Dynamics

Monday, December 28th, 2009

The U.S. dollar, having dropped precipitously since early March of 2009, has turned on a dime and soared upward.  After nine months of persistent weakness, in early December it began to rally, gaining almost 5% in roughly three weeks against an index of currencies that has served as a popular gauge for measuring the dollar’s relative strength versus other developed nations.  More significantly perhaps is a tidal shift in the behavior of other markets.  For the prior fifteen months, equity and commodity prices tended to move counter to our currency, rising when it fell and vice versa some 70% of the time.  Now we have begun to see them all move up together.  In fact, that pattern has now continued for two months, the first time such a lengthy positive correlation has been seen since April and May of 2008, well before the collapse of Lehman. Further, Commodity Futures Trading Commission (CFTC) data shows traders have become bullish on the dollar relative to the Euro for the first time since late April of 2009.  Why the sudden change of heart?  Many of our indicators have begun moving toward or even into positive territory and the markets have often reacted favorably when such data points were released.  Further, while many economists fear the rapid growth in money supply will ultimately prove inflationary, the Federal Reserve actually began draining funds from the banking system in early December, removing almost one billion dollars in a series of operations throughout the month.  Not only could this be causing some investors to view our currency more favorable, it also suggests we could see interest rates move up in the near future, bringing the yield on dollars up even higher than they already are relative to Japan and Europe.  Here at Atlas Indicators we feel the robust nature of this change will allow it to continue for some time; therefore, we are moving the needle for this indicator up a notch with hopes to do more of the same in the first half of 2010.

November CPI

Thursday, December 24th, 2009

According to the Commerce Department’s index, consumers saw prices rise 0.4% for the month of November, matching consensus expectations.  This compares to the 0.3% gain we saw in October.  As is so often the case, the biggest culprit was a large jump in energy costs.  Year-over-year the CPI made a huge upward leap from a negative 0.2% rate of decline posted for October to a current 1.9% gain.  If you were a member of the group fearing deflation, October’s small negative pace compared quite favorably to September’s 1.3% negative drop.  Given the rapid rise seen over the last two months though, will we now hear commensurate concerns from inflation hawks?  A glance at the core CPI numbers which eliminate food and energy prices may help enlighten us in that regard.  For November the core rate was unchanged, having risen just 0.2% in October, and currently remains at a positive 1.7%, still within the range the Federal Reserve supposedly considers tolerable.  The fact that we didn’t see a similar two-month spike in the core evidenced by the headline report suggests the remarkable volatility of oil prices we saw a year ago are playing a significant role, contributing to the difference between the two.  Since this single factor still must play itself out, here at Atlas Indicators we won’t be surprised to see the headline CPI continue its climb for another month or two.  We will keep an eye on the core rate where we do not expect to find confirmation that inflation is truly taking hold.

November’s Leading Indicators

Wednesday, December 23rd, 2009

The Conference Board’s November Leading Economic Indicators report produced a 0.9% increase, a reading that is quite strong, coming in above the consensus 0.7% estimated increase.  One major source of strength remains the yield curve, a rather arcane piece of data comparing short-term interest rates to their long-term counterparts.  Monitoring the “spread” or difference between the two leads many economic tea leaf readers to certain conclusions.  In this particular case the conclusion is bullish for our economy over the next few months.  Another source of strength, initial jobless claims, may suffer a significant revision when more recent and somewhat negative data gets figured in to next month’s calculation, but for November it adds to the plus column.  Two other positive contributors are more straight forward; gains in both the stock market and factory workweek furnished some acceleration to the upside.  Detractors were less significant given their small magnitude.  A slight pullback in consumer confidence and a weak advance in delivery times carried little countervailing weight. The conclusion we can make from this month’s report is that it provides some further evidence the U.S. economy continues to build mild but positive momentum to carry it into the new year.  After everything we have experienced in 2009, we’ll take it.

November PPI

Tuesday, December 22nd, 2009

The Department of Labor’s November index of producer prices rose a stunning 1.8% at the headline level, almost double consensus expectations.  This powers the year-over-year rate of increase to a worrisome 2.7% gain from October’s annualized 1.9% drop.  A spike in energy costs, primarily gasoline, gets the most blame for the November increase although higher food prices contributed a bit as well.  Still, when we subtract food and energy to calculate the core PPI, we see it rose 0.5% for the month, also well ahead of all projections.  This is especially troubling given the huge 0.6% surge the core experienced in October.  Annualized, it is now climbing at a 1.2% pace, not alarming in itself, but we must also pay attention to the ongoing rate of change.  One component applying upward pressure to the core for the month can be found in rising light truck prices which may just be rebounding from an even sharper fall seen in October.  Higher tobacco prices also assisted in the upward push on prices.  While we must remain vigilant concerning any nascent signs of building inflationary pressures, this month’s report by itself provides insufficient evidence to justify such an outlook.  We’ll keep an eye out though, and let you know if and when we see it, probably right after adjusting your portfolio to take advantage of the situation as it develops.