Archive for April, 2011

Sentimental Journey

Friday, April 29th, 2011

Two of the indicators we chart actively on our marketkapz.com site deal with the consumer’s confidence and sentiment.  Lately we have mentioned a divergence within this data which suggests there are two Americas congealing into distinct groups.  Those who earn over $75,000 per year generally feel things are improving; those who don’t, don’t.  This suggests to us that the 50-50 split we have observed over the last decade or so in individual viewpoints and their attendant political expression may be shifting rapidly.  Are we to soon reach a point where increasing numbers of the middle class feel their lifestyle is threatened by business as usual, adding their voices to those who are less fortunate in an attempt to begin redressing a system that they see as increasingly out of balance?  Will they see themselves as having been robbed of their birthright by an establishment which has grown increasingly out of touch?  Will they be angry?

Chew on this for a second.  According to a recent Bloomberg piece, the 2008 IRS income tax statistics point out that the top 1% of income earners pay about 38% of all income tax receipts.  The bottom 45% pays nothing.  Look closer; who are these people?  If you earn $380,000 or more annually, you’re in the top 1%.  If you are a traditional householder, married with two children, and pulling down $26,000 or less, then you are in the bottom 45%.  Apparently, earning anything between those two sums means you provide the government with the balance of its individual tax receipts.  Where does that put you?

Allow me to go one step further.  How do you raise a family on $26,000 per year these days?  With energy and food costs soaring, surely wages are keeping up, right?  No, actually, adjusted for inflation wages have declined 1% over the past year.  The possibility of higher taxes combined with benefit cuts may push ever more families into a lower standard of living, eroding the middle-class base.  That will not make for good politics in the future for either of the major parties.

March 2011 Leading Indicators

Thursday, April 28th, 2011

The Index of Leading Economic Indicators (LEI) for March rose 0.4% suggesting economic growth will remain with us for the balance of 2011, although at such a low level it cannot really be expected to accelerate.  According to the Conference Board which publishes this report, consumer expectations took an upward turn toward the bright side, setting a positive tone.  Also in the plus column was slowing vendor deliveries which are taken to indicate an increase in orders manifesting as a supply backlog and therefore considered to be a good thing.

I’ll be the first to admit I am rarely characterized as ebullient, but the February LEI report did cause me to declare it was “good.”  An upward 0.2% revision in March, bringing February up to a full 1.0% gain only adds to what passes as euphoria.  Lest you take my tone as too positive, I hasten to add that most of the gain seen in this report remains driven by a yield curve still manipulated by the Fed’s drive to keep monetary stimulus available.  They don’t show any signs of changing that path anytime soon so this particular indicator will, in our opinion here at Atlas, continue to carry marginal value.  When Mr. Bernanke and Co. release the fetters, we’ll see how things play out on a more even field.

March Consumer Prices

Wednesday, April 27th, 2011

The Commerce Department released the March figures for the Consumer Price Index (CPI).  It was no surprise that the index continued to climb as the cost of living has been in the headlines frequently this year.  Month-over-month, costs grew 0.5 percent.  This follows February’s increase of the same amount.  Year-over-year the prices of goods and services have gone up by 2.7 percent which is the largest twelve month increase since December 2009.

The largest portion of the increase is attributed to gasoline and food.  Gasoline increased 5.6 percent.  It has gone up in each of the last nine months, surged 14.4 percent in the last three months alone, and 27.5 percent over the last year! Food and beverages increased by 0.7 percent after growing by 0.6 percent the month before. The cost to eat at home jumped 1.1 percent for the month.

Taking out the normally volatile food and energy components leaves us with the more glacially changing “core” CPI.  It did not change its pattern as it grew slower than the previous two months with an increase of 0.1 percent month-over-month. Year-over-year it is up 1.2 percent.  This type of slow core inflation change is not enough to alarm the central bankers especially as the unemployment rate remains stubbornly high. The concern is that the continued acceleration of food and energy costs will take away from consumption in other areas of the economy since the two have only been moving in one direction as of late.  Unfortunately our economy cannot survive on food and energy alone.

March Industrial Production

Tuesday, April 26th, 2011

In March, according to the Federal Reserve, our nation’s industrial production (IP) rose 0.8%, following on the 0.1% February increase which was revised from a 0.1% decrease we originally reported.  Utilities climbed out of the prior month’s hole with a 1.7% gain, while mining built on the 0.3% February increase (revised from +0.8%) by adding another 0.6%.  Manufacturing grew at a robust 0.7% after February was revised up from a 0.4% gain to 0.6%.  Year-over-year IP has risen by 5.9%, an increase over the 5.6% gain seen in February, and a very encouraging number for this segment of our overall economy.

The output of durable goods, longer lasting stuff like cars, rose a full one percent thanks to a 3% gain from motor vehicles and parts.  It still showed a respectable 0.6% increase without them.  The non-durables category which includes such items as chemicals or paper rose 0.5% in March.

Capacity utilization, a gauge of how fast our nation’s productive output is being generated, increased 0.6% to 77.4% (after February was revised up one-tenth).  While this is the fasted rate we have seen since July of 2008, it still falls well below the 80.4% long-term average rate seen from 1972 through 2010, suggesting strongly that, despite the rise in food and energy costs and many informed opinions to the contrary, inflation will be held at bay for some time to come.

March Producer Prices

Monday, April 25th, 2011

Expectations for the March headline producer prices index (PPI) indicated a full one percent gain.  According to the Labor Department it came in at a lower 0.7% increase, still high but well off the boiling point 1.6% level we saw in February.  The year-over-year rate slipped, but barely, off one-tenth to a worrisome +5.7%, well above anything the Fed wants to see.  The core rate, which subtracts food and energy, was up 0.3% in March, rising 2.0% year-over-year and hitting what many consider to be the top end of the Federal Reserve’s comfort zone.

The rapid rise we are seeing in prices can be attributed in large part to energy costs.  No surprise there.  These were up 2.6% in March on the back of February’s 3.3% rise.  Individually we felt the impact as gas prices at the pump soared 5.7%, a full two percent higher than the previous month.  For those in colder climes a 2.7% jump in heating oil prices just added to the misery.  Food was actually off 0.2%, but with the 3.9% jump in February the drop doesn’t seem to be very apparent when I go shopping.  If you happen to be looking for anything which comes in a small blue box, prepare yourself for sticker shock; the jewelry, platinum and karat gold category gained another 3.7% after February’s 4.6% climb.

Ben Bernanke and company are rapidly coming face to face with some very hard choices.  The second quantitative easing program (QE2) ends in June.  Many in (and outside) government consider this program tantamount to printing money and therefore it must share a large part of the responsibility for rising inflation.  On the other hand, many fear allowing it to expire without being replaced by QE3 will remove that stimulus upon which our current fragile economic recovery relies.  Their final decision will be tough and all of us must live with the consequences.

March Retail Sales

Thursday, April 21st, 2011

The Commerce Department said retail sales rose 0.4% in March, marking their ninth consecutive increase.  Adding a positive slant to the headline number were revisions to January (up 0.2% to 0.8%) and February (up 0.1% to 1.1%).  On an annualized basis we see some slippage with the number now growing 7.1%, a full 2% drop from last month’s calculation.

Individual components of the report do show signs of broadening demand.  Most encouraging were the 3.6% rise in furniture & home furnishings, a 2.2% jump in building materials, and a 2.1% hike in electronics & appliances.  Perhaps we are seeing signs of life in the housing market.  Conversely these spending increases may just point to remodeling as more families decide to stay put and upgrade their current dwellings.

Besides the headline jump, we always turn to the core number which excludes volatile components such as autos and gasoline.  This figure showed a 0.6% increase.  Some analysts also exclude building materials to arrive at a core number; doing so would still show a 0.4% rise.  What doesn’t seem to get much mention this month is one footnote I found pointing to a mere 0.1% increase in overall retail sales for March if just gasoline was excluded.  Judging from what it takes to buy a tank of gas, this isn’t hard to believe.  If such a trend continues, look for other purchases to begin being squeezed out.

March 2011 Federal Deficit

Wednesday, April 20th, 2011

As the Treasury Department closes the books for March, we have reached the halfway point of our nation’s fiscal year.  The checking account didn’t come into balance.  No surprise there.  The shortfall for the month, at $188.2 billion, pretty much met expectations.  With six months under our belt the total 2011 deficit is reported to be $829.4 billion, making it a 15% deeper hole than what was experienced last year at this time.

Obviously outlays are running higher at an increasing rate.  Special items like the government’s housing and economic recovery programs are adding to the burden.  Net interest expenses up 10% so far year-to-date are making themselves felt as well.  Receipts are growing at a much slower 7% clip, but it’s not your fault.  Individual taxes have risen 21%, proving you are doing your share.

A much dented can is continuing to be kicked down the proverbial road as Congress cobbles together short-term extensions to prevent a government shutdown.  This has, of course, been a standing issue dating back well before the most recent election.  If they couldn’t achieve a balanced budget last year when one party held sway over both House and Senate, I wonder what more we can expect now.  Unfortunately, the only thing that seems to be baked into the cake is higher interest rates.  If that happens, things could get worse even faster than the budget calls for.