Archive for April, 2010

A Sufficiency of Suffixes

Friday, April 30th, 2010

While the National Bureau of Economic Research has yet to officially pronounce the recession here in the U.S. ended, they assuredly will sometime in the future.  So confident of this are we here at Atlas Indicators that our attention is now turned toward how various endings to the current bull market may play out.  Of course, for the economy to recover it obviously first had to begin recovering, but this process of recovery by no means suggests that things have recovered.  It hardly takes a degree in economics for the casual observer to note a change from ring to red begins as over morphs into very.  Now you may choose to castigate your humble author, decrying his observation as mere word play, but more than suffixes of a sort are involved here.  The rally in equities combined with fairly calm bond markets has produced favorable results for our portfolios, and we hope to hold on to them.  Thus, how it all ends is of the utmost importance.  I’m certain it doesn’t take a degree in English to agree with us on that.

March New Home Sales

Thursday, April 29th, 2010

Good weather, low mortgage interest rates, and the rapidly approaching end of a government sponsored stimulus package all conspired to move new home sales up in March.  According to the Census Bureau and HUD, from February’s record low sales soared upward 27% to a seasonally adjusted annualized pace of 411,000 units, the biggest gain percentage-wise in 47 years.  The report also increased the number of sales recorded for each of the prior three months, dropping the available inventory to 228,000 homes nationwide, a 39 year low.  This is encouraging news since the current supply would be exhausted in 6.7 months at this sales pace, down from the 8.6 months we saw in February, and within striking distance of the five to six month range most economists consider normal.  The median price fell $7,600 to $214,000 which suggests lower-end housing comprised a larger share of the total.  This, in turn, could be a reflection of first-time buyers coming in to take advantage of the tax credit now available but set to expire the end of April.  It will be interesting to see if the current momentum can be sustained through the balance of the year without such an incentive.

March Producer Price Index

Wednesday, April 28th, 2010

Rising 0.7% in the month of March, the Labor Department’s Producer Price Index increased at almost twice the rate generally expected.  On a year-over-year basis the headline rate expanded by 6.1%, a marked increase from the strong 4.6% seen in the prior month.  Before becoming too alarmed by this harbinger of inflation, if we look at its components to get a better understanding of what is influencing the rise we find a prime example where outside events can skew the data.  Unusually cold weather in many of our nation’s key growing regions has had a seriously negative effect on yields, leading to a 49.3% jump in prices for fresh and dried vegetables, the biggest monthly increase we’ve seen in 26 years.  This is exactly why the core PPI was created, to remove such exogenous pressures.  It looks at price movements after removing both food and energy.  At the core prices rose just 0.1% for the month, and that can be attributed almost completely to a hike in the cost of gold jewelry.  On a year-over-year basis, prices at this level are up just 0.8% seasonally adjusted, actually dropping by one-tenth from February.  No doubt the Federal Reserve will consider the data friendly toward their current policy of low interest rates.

March Existing Home Sales

Tuesday, April 27th, 2010

According to the National Association of Realtors, sales of existing homes rose in March by 6.8% to an annualized rate of 5.35 million units.  Single-family home sales increased by a respectable 7.3% and gains were recorded across all regions of the country.   Any such increase is good news although we had hoped to see the numbers turn more robust given the imminent expiration of our government’s second round of stimulus packages for purchasers.  Supply contracted by just a couple of weeks with this increase in sales, leaving an eight month burden hanging over the market if the current pace continues.  Interestingly, the median price rose 3.7%, bringing it up to $170,700, and registering a slight 0.4% increase on a year-over-year basis.  We’re glad to see signs of stability and potential for an upward bias to take hold.  We also remain cautious given talk of a looming “shadow inventory” as banks begin processing more foreclosures, apparent tightness in the credit markets, and the expiration of the current stimulus program.  While an increase in sales and prices would be beneficial, that combination is probably too much to hope for as the year ticks by.

March Leading Economic Indicators

Monday, April 26th, 2010

The Conference Board’s March Index of Leading Economic Indicators rose for the twelfth month in a row, showing a 1.4% gain.  February was revised up as well to a plus 0.4% from the meager 0.1% we saw in the initial report last month while January’s number was doubled to a 0.6% increase.  Strong contributions came from lengthening delivery times and a longer work week, both very positive signs for a continuing recovery within the manufacturing sector.  An increase in building permits also gives the beleaguered construction sector an encouraging pat on the back.  Even employment levels recorded a small increase as seven of the ten components that make up this report showed an improvement.  This is the kind of strengthening we alluded to in last month’s commentary on the LEI and given the trends in place it is likely we’ll see continued strength for April as well.  We’ll move the needle up a notch expecting more good news is yet to come.

Pollen versus Gumballs

Friday, April 23rd, 2010

In my neck of the woods the Liquid Amber tree was quite popular for awhile and some cities planted them profusely in common areas.  The leaves generally turn with the seasons, bursting out in yellow-greens that darken as spring moves to summer, then turning into reds, purples, and yellows in the fall before tumbling to the ground.  Springtime also brings a rain of pollen as the trees effloresce, while hard gumballs fall onto the sidewalks when they begin their dormant phase as winter approaches.  This bit of botany demonstrates how easily we can determine the difference between times of growth and decline.  Here at Atlas Indicators we obtain similar information from some of the services to which we subscribe.  One, a short-term technical indicator, measures bull market accumulation (buying) versus bear market distribution (selling).  When buyers are increasing their momentum as selling abates, a strong market in the early phases of its advance is the typical result.  Interestingly, this is exactly where we seem to be currently according to this singular indicator.  As long as their market analogues to catkins are still flourishing, we will remain optimistic.  Hopefully we won’t have to pull in our horns for quite some time yet, not until we begin to get a few burrs under our saddle.

March Consumer Prices

Thursday, April 22nd, 2010

The Labor Department said their consumer price index in March rose just 0.1%, after remaining unchanged in February.  This negligible change was caused by a slight rise in food costs while energy prices remained the same as before.  Obviously, at least to me, prices at the pump have gone up so we may see this component rise in next month’s report unless other energy costs like heating oil offset the jump.  Year-over-year the headline CPI is up 2.4% seasonally adjusted, a slight increase over February, some of which can be attributed to the statistical method used in its calculation.  At the core level, which subtracts out energy and food, the CPI was unchanged.  Apparel costs fell a bit and housing stayed flat.  Remarkably, this latter component has been flat or negative an unprecedented four consecutive months, underlining one of the biggest drags on the current recovery.  With the core reading up just 1.2% Y/Y, look for some commentators to begin discussing the negative ramifications of deflation.  This weakness provides the Federal Reserve with a strong argument for keeping interest rates near zero for a long time to come.