Archive for April, 2011

March Institute for Supply Management

Tuesday, April 19th, 2011

The March reports issued by the Institute for Supply Management (ISM) showed our economy continues moving forward.  The manufacturing component hit 61.2%, off just two-tenths from February which was a high not seen since May of 2004.  Anything above 50 indicates expansion and readings in the sixties are fairly robust.  The non-manufacturing component came in at 57.3, down 2.4 points from the prior month.  A distant cousin that takes the pulse of manufacturer’s globally posted 55.8, keeping it above its long-term average and suggesting global industrial production can advance by five to six percent this year.

Looking under the hood of the manufacturing report we see a pullback in several key areas.  New orders fell to 63.3 from 68, exports to 56 from 62.6, and employment to 63 from 64.5 points.  Growth showed itself in one weird statistic as longer lead times were needed to get orders filled.  This suggests cautious employers may ramp up future hiring if demand stays strong. Inventories actually shrank 1.4 to 47.4 points.  If demand continues, this figure will need to increase also, adding even more to the demand side.  One area where we don’t like to see growth is pricing; unfortunately, prices paid jumped by 3 to 85, the highest level since July of ’08.

The non-manufacturing (or services) report pulled back substantially but still remains well above the break-even 50 level, suggesting growth remains fairly strong but possibly slowing.  Underlining this attenuation was a seven plus point drop in business activity to 59.7 and an almost two point reduction to 53.7 for employment.  New orders were off 0.3, but still reside at a stellar 64.1 level.  Here again we saw an increase in backlogs, up four to 56.0, suggesting some of this decline in growth could reassert itself in the coming months.  Bottom line: the economy seems to be continuing in its recovery but there are slight hints the surge may be getting just a touch tired out.

February 2011 Trade Balance

Monday, April 18th, 2011

Some reports we get are old before their time.  Such is the case with this one, the nation’s balance of trade report for February, which is produced in part by the Commerce Department.  The headline shows our deficit for that month was $45.8 billion, still quite high but lower than the $47 billion (revised up $700 million) posted in January.

Imports, down $3.6 billion for the month, fell more than exports which saw a $2.4 billion drop.  The details provide a mixed bag.  Our imports of both food and consumer goods rose to record highs while capital goods and cars fell.  Interestingly, exports of both cars and capital goods also fell, along with a decline in industrial goods.  This drop in big ticket manufactured goods on both sides of the ledger could be interpreted as the first sign of a trend toward slower economic growth globally.

All of this may prove moot in light of events which have transpired since the end of February.  The Japanese disaster will play havoc with global distribution trends for some time and aren’t captured by this report.  The rapid escalation in oil prices isn’t reflected here either.  Both will show in March data, and possibly even more so for April.  Unfortunately we have quite a wait before those results are available.  Since we are already seeing announcements of production delays and gas prices at the pump approaching $5 per gallon, we don’t expect the news to be especially heartening when it finally arrives.

Why Do We Need To Ask?

Friday, April 15th, 2011

Toward the end of March I sent out a blog referencing President Eisenhower’s identification of the military-industrial complex in his presidential farewell address.  Professor Steve in Hawaii referred another speech by Ike to me titled “The Chance for Peace” which was given much earlier in 1953.  As Supreme Allied Commander and highest ranking military officer during World War II, he knows of what he speaks.  Remember, he’s referring to the 1956 dollar.

“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron….is there no other way the world may live?”

I find such thoughts especially poignant at this time.  England has reportedly just decided to revoke arms export licenses from over 160 manufacturers.  And apparently JPMorgan Chase is being required to have shareholders vote on a resolution barring the firm from doing business with companies tied to genocide.  The bank tried to block the ballot proposal, arguing shareholders wouldn’t fully understand what implementation would mean.  We do live in a strange world, or at least some banks do.

March Consumer Sentiment

Thursday, April 14th, 2011

March has certainly been a wild month and the University of Michigan’s consumer sentiment gauge paid the price.  After scoring a three year high last month at 77.5, the index plummeted to 67.5, a monumental drop of 10 points.  The sudden disaster in Japan combined with violent unrest in North Africa and the Middle East, delivering a knockout combination.

There are just a few components that make up this index and expectations heads the list.  These fell to the 57.9 level in March.  Current conditions dipped to 82.5, off a bit more than one point.  Significantly, this index is now providing some of the weakest readings we have seen since the last recession officially ended.  Expectations alone have fallen some ten points in the last year, hardly the stuff of which a recovery is made.

Inflation expectations for the next year rose substantially, hitting 4.6% versus the 3.4% estimated rate seen in February.  Five year expectations put the rate at 3.2%, up from 2.9%, a figure which the Federal Reserve will no doubt closely monitor.

Last month we mentioned this indicator seemed to be taking the pulse of two different segments of our population as households earning above $75,000 seemed to feel positive while the rest were measurably less so.  This month’s report underlines that disparity as the number of consumers expecting their income to increase hit a low point we haven’t seen in over fifty years.

March Employment

Wednesday, April 13th, 2011

U.S. payrolls rose more than expected, up 216,000, which drops our unemployment rate another tenth to 8.8 percent.  January’s jobs were revised upward for a second time, adding 5,000 more jobs and raising that month’s total to 68,000.  February also saw an upward revision of 2,000 for a total of 194,000 new jobs.  As you can see, not only are previous months being adjusted upward, the number of jobs being creation are climbing month to month as well.  Good news!  Even the underemployment rate came down by two-tenths, now residing at the 15.7% level.

Almost every sector of our economy, whether manufacturing and industrial based or within services, showed some growth.  Construction was one notable exception where we saw a decline of 1,000 following on the strong 37,000 jump in February.  Government jobs were down significantly, off 14,000 this month after the 46,000 jobs were shed in the prior month.  This slip means even more people found jobs in the private sector than the headline suggests.

While the average workweek gained 0.1 hours to 34.3 hours, there was no change in average hourly earnings.  Temporary positions, a data point we like to monitor here at Atlas, added 28,800. I hate to gum up what appears to be a solid report, but some context is required.  Year-over-year job growth is up just one percent.  This is hardly stellar given we are approaching the two year anniversary of our last recession’s official end.

March Consumer Confidence

Tuesday, April 12th, 2011

In March, according to the Conference Board, consumer confidence matched the plunge seen in its consumer sentiment cousin.  It fell to 63.4, more than an 8-1/2 point decline (February was revised from 70.4 to 72).  This erases all the gains made year-to-date and makes mockery of last month’s headline touting February’s figures as the “best in three years.

What happened?  Obviously some of the blame can be laid to the horrible situations in Libya and Japan.  However, it was expectations of future inflation here at home that seems to have done most of the damage.  Higher prices for food and gasoline are making themselves felt.  By this measure, inflation expectations for this time next year hit 6.7%, a figure some three times larger than that targeted by our Federal Reserve.

Just last month this indicator gave a sense of budding optimism; now pessimism seems to be taking hold once again.  For the last three months a slight majority of folks expected to see their incomes rise.  Now it’s tied 50-50 with half those polled expecting to see a decline.  Pessimists also now outnumber their opposite concerning the outlook for jobs in the coming six months.

Combining this report with the recently released consumer sentiment numbers leaves us with quite a sour taste.  It’s hard to imagine retail sales improving in this environment.  Also, we can hardly expect the Fed to refrain from raising interest rates if high inflation expectations persist, and that will not be a positive for our weak housing market.  Let’s hope these results are a headline driven one-off and American resiliency can reassert itself in April.

February Income & Outlays

Monday, April 11th, 2011

Individuals, at least in theory, need to make more than they spend.  Thus here at Atlas we monitor the monthly fluctuation between income and spending Americans generate in toto.  Frankly, it bobs up and down faster than a springtime robin’s head, but February really takes the cake.  Income rose a respectable 0.3%, yet spending soared 0.7%.  Unfortunately, inflation went up 0.4%, which means it, like consumption, also grew faster than wages.  Ouch.  The core rate (sans food and energy) was up 0.2%, unchanged from January.

What did you buy?  Purchases of durable goods climbed 1.6% after rising just 0.3% in January, but non-durables ran a close second, up 1.4% versus its one point January jump.  When you figure food and gasoline are possibly the two most non-durable things we buy, the latter’s increase should come as no surprise. Services were up just 0.2% after showing no change in the prior month.

Year-over-year personal income through February has gained 5.1%, while spending is up 4.1%, both showing a two-tenths gain over January’s annualized figures.  That suggests Americans may be continuing in their newfound path of saving part of what they earn instead of maxing out credit cards. The spoiler, inflation, is up at the headline level year-over-year by just 1.6%.  At the core level it now posts a slim 0.9% year-over-year gain.  Even though these price hikes appear contained, the spending pattern we see emerging suggests consumers are become more concerned about inflation.  With global demand pressuring a broad spectrum of raw material costs higher, it may prove difficult to rein in the price increases for essentials like oil, coal, corn, and cotton.