Archive for March, 2011

February Employment

Tuesday, March 22nd, 2011

Unemployment in the U.S. continued its decline in February according to the Labor Department, falling to 8.9% as 192,000 jobs were added.  Revisions also increased payrolls for January (up 27,000 to 63,000) and December (up 31,000 to 152,000).

The report showed good gains in both our manufacturing and construction sectors plus increasing demand for temps, all of which overcame a decline in state and local government payrolls.  The number of federal government jobs remained essentially unchanged.  Most encouraging, the share of different industries delivering employment gains in February hit 68.2, the highest level we’ve seen since May of 1988!

Prior reports had seemed subject to questions about the quality of jobs and the make-up of available labor.  This report answered many of these concerns in convincing fashion.  The number of jobless fell by 190,000; the labor force grew by 60,000; private sector hirings rose by 222,000; construction and factory payrolls increased by 33,000 each; service providers added on 122,000 souls; average hourly earnings rose a penny to $22.87; the average work week held steady at 34.2 hours; the underemployment rate fell 0.2% to 15.9%.

This news certainly underscores Fed head Bernanke’s latest congressional testimony where he saw “grounds for optimism” concerning our labor market even though he felt it could take “several years” before employment returns to a “more normal level.”  The report also enforces signs of increasing optimism appearing in other indicators we follow.

February Consumer Sentiment

Monday, March 21st, 2011

Consumer Sentiment leapt forward in February and, at 77.5, hit its highest reading since January 2008.  The index is up 4.4 percent for the month and 5.3 percent year-over-year.  The current conditions portion of the survey provided the largest boost to the monthly change in the indicator.  After looking further into the report, however, we see a tale that is split by income levels.

Higher earning households were responsible for all of the increase as the sentiment index jumped by 9.7 percent among households with income levels above $75,000.  In homes with less than $75,000 in annual earnings, the reading fell 1.4 percent.  The primary difference came from responses to inquiries about job and income prospects where those in the higher bracket were much more positive.  All groups surveyed also noted concerns about the rising costs of higher food and energy, but that concern was not enough to overwhelm the positive outlook in the employment market and other economic news.  For the first time in over six years, the survey revealed respondents heard more positive than negative news of economic developments during the month.

This survey has been going on since 1946, and over the years there has been some correlation between consumers’ attitudes and their consumption habits.  March has gotten off to an interesting start as geo-politics compete with Charlie Sheen for headline space.  If the events in Japan, North Africa and the Middle East continue to put pressure on the costs of fuel, the higher prices are sure to impact the consumer’s point of view.   Should they rise too high it might take two and a half men to push my car into the next gas station.

February Consumer Confidence

Friday, March 18th, 2011

“The Best in Three Years” is the type of headline we like to see attributed to an indicator here at Atlas, and at 70.4, that is an accurate description of February 2011’s Consumer Confidence number recently released by the Conference Board.  After a huge 4.2 upside revision to January’s number, it currently resides at the highest reading since February of 2008.

Leading the country’s confidence higher is an assessment of the jobs market.  Only 45.7 percent of those polled feel jobs are “hard to get.” In January the reading was 47 percent.  The outlook for future job availability is improving. While both sides of the equation declined, the number of folks expecting fewer jobs to be available in the near future fell considerably more than those expecting more jobs.  Only 15.4 percent now expect fewer jobs in six months (from January’s 21.2 percent) versus 19.8 percent expecting more jobs (started the year at 20.8 percent).  Also, before this month’s release there were more people in the survey expecting to make less money over the same period of time than those anticipating higher incomes.  This changed for the better as well.  Such a positive trend reversal will, with any luck, maintain a positive slant for some time to come.

There is a correlation between consumer confidence and consumption.  As consumers become more confident, their tendency is to spend more. Thus the mere anticipation of more income may be just the catalyst needed to get consumers to part with more of their money.  The pace of recovery currently is creeping slowly upward.  This increase in confidence may spur our economy to pick up the tempo.

January Leading Indicators

Thursday, March 17th, 2011

The Conference Board’s Leading Economic Index (LEI) increased 0.1 percent in January after increasing 0.8 percent and 1.1 percent in December and November respectively.  The LEI has been signaling further expansion every month since July, 2010.  The most recent data, while showing a sharp contraction from the prior two months, still suggests our economy can grow over the months ahead.
Building permits have really added to the volatility of the indicator.  They were the strongest component in December only to be the weakest come January.  Some of this can be attributed to changes in laws starting at the beginning of the year which prompted builders to acquire permits before the new year commenced.  Jobless claims provided weakness as well with the average weekly initial claims for unemployment growing by 20,500 in January.  The largest contributor to the LEI remains the interest rate spread between the federal funds rate and the 10-year Treasury bond.  As January progressed, interest rates on longer maturity bonds rose while the rate at which banks borrow overnight stayed at record lows, thereby increasing the spread which, in turn, provides a positive boost to this indicator.  Bottom line: the LEI trend still points to growth, but the rate is slowing.

Light My Fire

Wednesday, March 16th, 2011

As near as I can tell, there is a basic theory which has, as its bottom line, the idea that everything is permanently attractive.  This means that stuff by its very nature generally wants to cling to other stuff.  Regardless of the distance separating them, different pieces of stuff will ultimately come together.  There is apparently enough evidence to support this idea that it has been given an official name.  Newton called it gravity.

Now as the story goes, over time so much stuff hooked up in this manner that the end result was serious overcrowding.  So much so that stuff in the middle of the crowd could hardly move.  It all began jostling against nearby neighbors, temperatures began to heat up, more stuff that arrived late to the party kept crashing in and just added to the pressure all the other stuff was under until things got really weird.  The original particles of stuff started fusing together.  Where there had been two pieces, of a sudden there was only one.  Some call that genesis; others call it sun formation.

Sometimes, when all that stuff is coming together, there just isn’t enough to make the magic happen.  You can end up with a big pile of it, 60 or 70 times more than the pile we’ve named Jupiter, but it can’t get a permanent fire lit despite having some heat.  That is called a Brown Dwarf; a sort of a sun that almost made it to the big leagues.

What’s the point?  If our economy is to ever begin shining as brightly as it was in the 50s and 60s, the 80s and 90s, we need to have a number of things come together in the right way.  Consumption, employment, housing, exports, demographics, and more must all crowd together in just the right way or things won’t ever seen quite right.  Brown dwarfs can’t cut it because some of the stuff they need in order to reach critical mass gets siphoned off by neighbors who use it to light their own fire.   Will the same prove true as emerging market nations attract more of the stuff we need in the process of maturing into full-blown suns themselves?

January Income and Spending

Tuesday, March 15th, 2011

The January Commerce Department report on consumption and expenditures shows there was a strong one percent rise in personal income for the month.  This was substantially higher than expected, augmenting the 0.4% increase seen in December.  Unfortunately, most of the jump is attributable to the temporary reduction in social security payroll tax enacted by the government last December, without which wages were still up, but barely.  Wages have now climbed 4.6% year-over-year.

Spending increased 0.2% in January and is up 4.0% annualized.  The jump here can be attributed in large part to increased energy costs as oil prices continue their climb.  In fact, adjusted for inflation, spending actually declined 0.1%, the first drop we’ve seen in a year.  Still, we may take heart in the spending increase, slight though it may be, because it builds on a series of stronger monthly gains which have accumulated over the past year.  If you question where the extra income went, given the low increase in spending, look to savings.  They’re up at a 5.8% rate.

This report also contains an important measure of inflation called the core personal consumption and expenditure price index which rose just 0.1% in the month.  This wasn’t enough to cause a change in the 0.8% annualized increase reported last month.  While both food and energy prices have been rising lately, their combined effect on the headline PCE price index remains muted.  It was up just 1.2% according to the report.  All told, the report seems to be a modest positive for our economy.

January Durable Goods

Monday, March 14th, 2011

The Department of Commerce reported Durable Goods Orders (DGO) in January increased by 2.7 percent month-over-month.  Despite the healthy headline number, the underlying figures in the report send more of a mixed message this month. It is aircraft and parts orders that really skewed the numbers, so we will look into the figures for you in an attempt to provide clarity.

In order to understand how companies are behaving, we like to look at a data point known as the “core capital expenditures.” This measures the amount of capital being added by industry after removing the volatile defense and aircraft components. Unfortunately, it fell 6.9 percent month-over-month. This is a development we will continue to monitor since the pace of this important segment of the report tends to act as an indication of business confidence.  When companies are willing to spend money on expensive equipment it suggests they feel confident enough in the current trend of business to justify investing their cash today in anticipation of profits in the future.  While the core number was robust last month, we now are seeing a substantial reversal.

While the overall report was not as persuasive as one would hope, it nevertheless describes a positive trend continues to develop within this cyclically sensitive manufacturing portion of our economy. It suggests this expansion we are experiencing may continue but we should not expect it to do so without some speed bumps along the way.