Archive for March, 2010

February Durable Goods Orders

Wednesday, March 31st, 2010

The Commerce Department reported orders for durable goods, those things manufactured here in the U.S. that are expected to last three to five years or longer, rose 0.5% in February.  That equates to an increase worth $178.1 billion dollars for the month, and is the third successive increase we have seen.  While the headline came in below consensus expectations, January’s total was revised to show a strong 3.9% jump instead of the 2.6% gain originally reported.  December was revised upwards as well.  Here at Atlas we focus on core orders which are comprised of non-defense capital goods excluding aircraft, a statistic many feel gives us a peek at future business investment.  It actually fell 3.9% in January so February’s 1.1% gain is welcome news.  Shipments of these same items rose 0.8%, reversing some of January’s 1.9% decline, good news as this data point is used to compute our gross domestic product.  Inventories increased slightly, which we consider a positive sign. Even better, unfilled orders rose the most in almost two years, suggesting demand is continuing to pick up.  Year-over-year orders are up 10.9%, another sign pointing to economic recovery.

GDP Final Rev. for Q4, ’09

Tuesday, March 30th, 2010

The third estimate of 2009’s 4th quarter Gross Domestic Product has been completed. The Commerce Department’s final revision, after having more time to sift through the stack of data required to compile the number, was a positive 5.7% annualized compared to the second revision showing our country’s growth at 5.9%. The primary reasons for the adjustment were lower business spending and inventories as well as a slight decrease in the personal consumption portion of the equation. In other words, businesses and individuals spent a little less than previously thought.  Comparing the fourth quarter year-over-year numbers, we see that GDP was 0.1% better in the last quarter of 2009 than in 2008. Overall, the revisions were one-tenth of a percent outside the consensus range and a non-event. GDP is not always so boring; it is the revisions that can be a bit dull. The third revision of the fourth quarter verifies 2009 was a tough year as annual real GDP was down 2.4% from 2008, but we can take comfort in knowing it is over. We get our initial look at the first quarter of the second decade of the twenty-first century at the end of April. Perhaps it will give us here at Atlas Indicators a reason to move this indicator’s needle on up another notch.

February New Home Sales

Monday, March 29th, 2010

The Commerce Department reported that new home sales fell for the fourth month in a row, off 2.2%, at a pace that annualizes out to just 308,000 units total nationwide.  This is the lowest rate recorded since this data series began being compiled back in 1963, underlining just how depressed the residential real estate market has become.  January’s sales were revised upwards by 6,000 to 315,000 units annualized but December’s total was lowered by 3,000 to 345,000.  The median sales price for January was revised higher as well, to $207,900.  Interestingly, the median price for February rose robustly, gaining 6.1% to settle at a $220,500.  The existing supply of new homes now equates to 9.2 months.  These figures are hardly encouraging, especially in light of the equally dismal existing homes report for February which was release one day prior.  Recent reports indicate mortgage applications are increasing, which may be evidence that the extended stimulus measures are beginning to take hold.  We can hope that happens, but there is little assurance that the new program will have longer legs than the first one.  Recall that sales seemed to stop on a dime with its expiration.

Acropolis Now

Friday, March 26th, 2010

In a recent commentary I discussed problems surrounding the looming debt crises confronting many members of the European Union, especially Greece.  That nation will soon be faced with renewing some $28 billion worth of debt which needs to be rolled over as it matures in April and May.  The end results will likely have enormous ramifications for the global banking system, and may provide a road map many other countries, including our own, can either follow or possibly avoid.  To get refinanced, their government will have to hold to their promise of fiscal reform.  This means stringent budget controls, big cuts in wages and jobs within the public sector, extensive reductions in promised government pensions, higher retirement ages before anyone can qualify for their version of Social Security, and probable cuts in the benefits it provides, both financial and medical.  Sound ugly?  Here are the alternatives:  a bail-out by other, richer nations within the EU (or the IMF), default, even a possible collapse of the Euro.  A bail-out won’t prove popular with the citizens of the lending countries who may feel they are having their future placed at risk to paper over bad policy and poor fiscal management outside their borders.  This is the moral hazard argument.  It would also expose a fundamental weakness in the EU’s design, its inability to enforce the rules established to prevent such reckless fiscal irresponsibility.  That, in turn, may lead other weaker nations to emulate such bad behavior, secure in the knowledge they will get bailed out as well, ultimately demeaning confidence in the Euro itself.  Default may actually be better than a botched rescue attempt, but it risks contagion as banks around the world which hold those bonds are negatively affected, interest rates in other weak countries climb, and belt-tightening measures are suddenly forced upon various nations around the globe.

February Existing Home Sales

Thursday, March 25th, 2010

The tax credits are coming!  The tax credits are coming!  Following two months of disappointing existing homes sales reports, The National Association of Realtors reported a third month of unsatisfactory news.  Perhaps the most concerning part about the report is the environment in which it is being reported.  Currently the government is offering a tax credit for virtually anybody buying a home for less than $800,000 who meets the program’s income requirements.  This program is an extension of last year’s program and is meant to reduce a less than salubrious supply.  A healthy economy has under a six month stock of existing homes.  After hitting 6.5 months in November, the supply has moved up for three months in a row and now stands at 8.6 months.  The additional inventory put pressure on the value of homes as the average price nationwide fell to $210,500 this month.  The Northeast was the only territory to see its average price increase year-over-year adding 7.5%.  The Midwest, South, and West lost 2%, 4.2%, and 9.8% respectively.  In order for prices and inventories to stabilize, the demand must have a reason to grow.  Since price has not sparked enough buying, the government is providing a tax credit.  With just over a month to go before expiration, the credits need to attract more buyers soon, or market forces may prove to be stronger than the government.  Here at Atlas we’ll bet on market forces over the government in the long run every time.

February Consumer Prices

Wednesday, March 24th, 2010

How much is that doggie in the window?  Well, based on the Labor Department’s February Consumer Price Index, it should cost the same as January. The CPI registered no change over the last month. This is due to offsetting components of the index. The cost of energy was down while the rest of the components, known as food and all items less food and energy, were up. Drilling a little further into the energy component, we see that utility (piped) gas service was the only part of energy to increase. Like a number of other indicators that we follow, the weather may have impacted the price of gas used to heat homes and businesses. If we extract the cost of food and energy, leaving us with the core CPI, we see a slightly different story. The core CPI registered a slight uptick of 0.1% for the month. Last month we wrote about the cost of lodging help bring the core CPI down. This month it provided no such aid and did not move from last month’s level. Along with used cars and trucks, medical care prices went up for the month taking the core CPI up with them. The year-over-year change in the core CPI is up 1.3%.  Like the change reported last month, February saw a smaller increase than the month prior. More specifically, January was up 1.5% and December 1.8%. Since the doggie is neither food nor energy, perhaps it is more expensive.

The US Dollar, early 2010

Tuesday, March 23rd, 2010

The U.S. Dollar seems to have completed its advance off the lows seen in early December of last year as measured by the dollar index we follow here at Atlas. Our currency strengthened by roughly 6.5% in just two month, topped out early in February, and has been trading sideways in a narrow range ever since.   The positive correlation we noted in our prior report on this indicator between the dollar, commodities, and U.S. stocks has seen the latter break away from the pack while both the currency and commodities have stopped advancing for the moment.  In fact, commodities in general have been rather lackluster.  One conclusion we might draw from this centers around the world’s other major currencies.  Specifically, the Euro seems to be on a slippery slope as some member nations are having their creditworthiness seriously questioned.  China is talking about currency controls as inflation there becomes more of a concern.  Oddly, the Japanese Yen seems to represent some stability in this environment despite their abysmal overall economic plight.  One persuasive argument that places a shadow on our currency is the recent trend for major foreign trading partners to seemingly shun owning it.  For instance, China has reduced their holdings of Treasuries three months running.  The problems outside our borders will not likely go away anytime soon, so it remains to be seen if the advance we saw early this year represents just the first leg of a longer uptrend.  We’ll keep an eye on things and let you know what we see.