Archive for February, 2011

January Consumer Confidence

Monday, February 28th, 2011

The attitudes of consumers improved considerably in January according to the Conference Board’s consumer confidence survey.  The 7.3 percent move, to 60.6 percent, was helped by both of its components, future expectations as well as the current situation.  Consumers’ expectations are now the best since May 2010, and their feelings about the current situation are the best since November 2008.  Since consumption makes up over 70 percent of our economy, it is important that consumer feels good.

Jobs have been a considerable headwind for America’s confidence.  The new year ushered in a new optimism as those considering it hard to get a job fell 2.5 percent to 43.4 percent for the best reading in two years.  This indicator places more emphasis on jobs than its consumer sentiment counterpart which will be reported separately and may also be pointing to an improvement in the jobs market as the year matures.

The survey suggests some improvements may come in the first half of the year.  Those anticipating an improvement in business conditions in the next six months increased to 19 percent from 16.8 percent in December.  The pessimists are losing strength as only 11.3 percent see the economy deteriorating in the next six months versus 11.8 percent in December.  Plans to buy big ticket items like automobiles and homes also improved.

Overall, the country’s confidence is making a comeback.  This indicator’s improvement coincides with others we watch suggesting the current expansion we are enjoying will endure.  The direction of the economy is pointed up, and Atlas expects it to continue.

Apple-ied Logic

Friday, February 25th, 2011

I don’t make a habit out of eating food with an expired freshness label; it just happens.  For instance, recently I was enjoying a delicious Chocolate Almond Biscotti which came from Trader Joe’s.  I have had the bag sitting around for awhile and you know how time can slip by.  Anyway, I happened to notice on the bottom a suggestion that the contents would be “best before April 2010.”  Good thing I didn’t read that before I ate it!  Mind you, the little morsel was pretty good and it set me to wondering just how much better it could have possibly been a year or so ago.  Obviously Biscotti doesn’t need such a subtle warning; I mean, how can you hurt something that by nature is already desiccated?  I suppose that’s the thing about a lot of the food we eat, eh?

We all may want to get used to eating hardier food.  The United Nations says world food prices hit a new all-time high in 2010, driven upwards in part by soaring prices of dairy products, sugar, and grains.  Combine a young, hungry, impoverished population where a day’s wages average two dollars and you have the tinder for flare-ups like we’ve seen in Egypt.  But they are not alone.  Such conditions also describe conditions throughout a large swath of the Middle East and Asia.  When basics like wheat and rice start becoming scarce as demand soars with population growth, anomalous weather patterns wreak their own havoc on supply, and price increases push essentials beyond the reach of ever more people, we will inevitable see further revolutions.  There is no guarantee that they won’t someday come here to roost as well.

All nations will likely find it expedient to feed their own population before exporting crops elsewhere.  Here in the U.S. we may even decide it is better to allow other nations on the brink of starvation to eat our excess corn rather than dumping it into our cars as a fuel supplement.  The global food chain is growing ever more complex.  Consider this.  I have an Ocean Spray apple juice bottle on my desk which advises that its contents include “concentrate from Germany, Austria, Italy, Hungary, Argentina, Chile, China, Turkey, Brazil and the United States.”   How our own larder gets replenished may be a mystery now, but could develop into a source of international friction at the current pace.

December Durable Goods

Thursday, February 24th, 2011

Durable Goods Orders fell 2.3% in December.  While having declined in four of the last five monthly reports, they remain up 13.5 % year-over-year.  Put out by the Department of Commerce’s Census Bureau, this is one of the indicators we watch which can provide a glimpse of things to come by providing insight into the work load the factory sector of our economy will have in the near future.

Delving further into the report, we see individuals grew less willing to part with their cash, a significant contributor to the negative tone of the headline number.  This is something we will need to keep an eye on in the months ahead since expensive durable goods tend to be one of the first places consumers cut spending when they become less confident.  On the other hand, businesses spent more on durable goods, showing continued confidence in the economy’s expansion.  Businesses generally place such orders when they feel the new equipment will be put to good use in the near future.  As a sign of ongoing strength, core durable goods orders (non-defense capital goods orders excluding aircraft) rose 1.4% in December, following on the 3.1% gain recorded in November.

As businesses continued adding to their ability to manufacture, the number of unfilled orders fell.  This suggests that our nation’s capacity to supply long-lasting goods is getting closer to the demand for such wares.  While keeping orders filled is healthy for the economy, it is important that capacity not overwhelm demand or jobs may need to be cut. The trend in this component continues to be under pressure and will need to show some life in the coming months.  As other indicators we follow are suggesting an upswing is on its way, we will look for this indicator to confirm such a surge is happening in the near future.

More or Less

Wednesday, February 23rd, 2011

The January 27, 2011 issue of Investor’s Business Daily carried a front page headline suggesting the new mix in Congress really means business.  In bold black print it ran “Republicans Insist: Big Spending Cuts for Debt-Limit Hike.”  Alright, the new kids on the block are really flexing their muscle now, but they had best be careful, when putting their foot down, just what it is they step in.  How exactly does a cut equal a hike?

Our current federal deficit is poised to hit a new record shortfall this year.  We will actually spend more than the law allows if Congress doesn’t soon decree that amount should be increased.  I suspect few firms or nations will be pleased to receive IOUs instead of cash from Uncle Sam.  The statutory limit on our national debt is set at $14.3 trillion.  Currently we owe $14 trillion, not counting unfunded liabilities like Social Security and Medicare.  Factoring these two into the total adds another $19.1 trillion by some estimates.  Our elected representatives need to face this problem head on, not try to have it both ways.  Significant, deep, even painful cuts in government spending need to be made across the board beginning now.  A bankrupt nation or devalued dollar are no longer acceptable choices down the path of least resistance.

I get the feeling we are coming ever closer to a time when outside forces may demand we curtail our spending if we don’t do so voluntarily.  Everyone agrees it will be tough.  There is a lot of talk in political circles about the need for strong resolve and a sense of urgency when the new Congress begins to tackle these spending issues.  But our representatives must also do something which is rare in politics, they must tell the whole unvarnished truth.  They can’t keep having it both ways and each of us should hold our representatives accountable for what they say and do, both of which should bear more than a faint resemblance to each other.  Bottom line: you must either spend more or spend less.  How much longer can we afford to allow Washington to have it both ways?

December New Home Sales

Tuesday, February 22nd, 2011

According to the Department of Commerce, new home sales grew 17.5 percent month-over-month in December to an annualized rate of 329,000 units.  The surge was a welcome development at the end of a record year.  The estimated 321,000 total homes sold in 2010 were down 14.2 percent from 2009, the lowest figure ever recorded.

The year finished with an inventory of 190,000 new homes for sale.  When December’s rate of sales is divided into the inventory, America is left with a 6.9 month supply.  This is within striking distance of the 6 month supply considered normal.  The western portion of the country was particularly active in reducing inventories as homes sales catapulted 71.9 percent for the month.  Prices firmed in the final month of the year as the median price paid jumped 12 percent while the average price paid increased 2.6 percent.

Overall the report has both good and bad components.  It is nice to see the inventory track closer to normal when measured in months.  But it still looks quite unhealthy when considering the number of units sold relative to the robust housing market of the past.  Perhaps the market for new homes is finally finding equilibrium, and new units will need to be built to keep up with future, albeit lower, demand.   This will help the construction industry, one of the hardest hit sectors in the labor market.

Duck Call

Friday, February 18th, 2011

Canard is French for duck.  In some American restaurants we use it as a French word for duck.  Small world.  Anyway, the term has morphed to mean something misrepresented.  For instance, last weekend I wanted to buy a five pound bag of sugar at the grocery store to help Lady Nancy bake goodies.  As you know, in the baking aisle all the white bags of sugar and flour are arranged in neat rows just as they have been like forever.  I felt especially strong when placing the item in my cart until I realized that five pound bags now weigh but four.  Hah!  Yet more evidence of a canard foist upon an unsuspecting public.

Here’s the deal.  The Consumer Price Index (CPI) supposedly represents the cost of a typical basket of goods you or I might buy.  It’s an important statistic from which our government derives an official inflation rate used, for instance, when adjusting Social Security benefits upwards as compensation for increases in the cost of living.  But the foist part of this canard involves an assumption that food and fuel prices should be subtracted from that basket when calculating price changes because they are too volatile.  The powers that be say food is too dependent on weather while energy can be affected by political turmoil in lands far away.  So they remove these items from the basket, coming up with what’s called the core CPI, and tell us it’s more representative of what we are actually experiencing.

The use of canard as a word for fraud comes either from some duck that would flop around to distract predators from its nest or an old French joke about two butchers competing by selling ducks ever cheaper.  Foist involves the fraudulent imposition of a notion upon others.  With food prices up some 60% and energy up about 45% since just last fall (both annualized per Gluskin Sheff), I think my basket is definitely getting pricier.  Apparently it keeps shrinking besides.  The core CPI headlines have been low to now, but with food and fuel comprising almost 25% of the headline total, they are going to have to exert an influence sometime soon.

December Existing Home Sales

Thursday, February 17th, 2011

Sales of existing homes increased in December over November by 12.3%.  The seasonally adjusted annualized number of homes sold went from 4.7 million in November to 5.28 million in the final month of 2010.  December is the fifth month out of the last six which has shown improvement.  Nevertheless, while the most recent trend has been up, it did not move fast enough to best the December 2009 pace of sales.

Prices helped move sales as the national median existing-home price slipped one percent year-over-year to $168,000.  The composition of homes sold still points to weakness as 36% of the homes sold fell into the “distressed” category (e.g. foreclosure or short sales) versus 33% in November and 32% at the end of 2009.

Mortgage rates are doing their share to help the market as Freddie Mac reported a national average commitment rate for a 30-year, conventional, fixed rate mortgage at 4.71%.  This is less than the 4.93% rate seen in December of 2009.
The combination of rates and prices are having a positive impact on inventories.  The nationwide number of homes for sales now stands at 3.56 million.  If we divide that by the most recent sales pace, we get an inventory that will take 8.1 months to unload.  The housing market is considered to be healthy when it has roughly a six month supply, so after November’s inventory of 9. 5 months, we are headed in the right direction.

It’s no secret that the housing market has proven to be a drag on our economy.  This weakness has continued to influence consumer behavior as Americans feel less wealthy.  The Atlas crew sees housing continuing to be an issue until inventories, both the explicit and implicit, are worked through.  This month’s existing home sales report will be logged under the category of making progress.