Archive for May, 2011

March Balance of Trade

Thursday, May 19th, 2011

The Commerce Department released our country’s trade balance for March, and it was the worst deficit in nine months.  America imported $48.2 billion more than it exported, but the report is not all bad news.  Our exports increased by 4.6 percent to a record $172 billion.  In the end, imports were the strongest since August 2008, and the growth of imports managed to edge out exports by growing 4.9 percent for the month.

With the cost of oil rising, it is no surprise that petroleum deficits led the imbalance, but price was not the only cause for the larger gap.  The volume of imported petroleum grew 8.8 percent. Overall, the petroleum gap increased to $31.3 billion from $25.5 billion a month earlier.  The chasm in nonpetroleum goods fell $3 billion to $29.8 billion.  We managed to export more services for the month as well as service exports grew $200 million to $13.9 billion.

While the deficit widened, it still points to global economic growth. Demand is rising around the world, and it is being aided by the recent weakness in our dollar.  As our currency continues to depreciate, the rest of the world will be able to afford more of our goods and services.  One risk associated with the greenback’s direction is America’s relationship to petroleum.  Our consumption of fuel is not easily adjusted, so a larger percentage of Americans’ finite budget will go to this imported good as the dollar weakens.  This will surely put pressure on the country’s ability to purchase other goods and services. Hopefully world demand will continue to grow, but it is hard to export services provided by people like dentists, attorneys, and waiters.

April Consumer Prices

Wednesday, May 18th, 2011

In the month of April consumer prices (CPI) rose 0.4% according to the Commerce Department.  That brings the annualized rate of retail inflation to 3.1% on a seasonally adjusted basis.  While this headline number remains above the Federal Reserve’s target which is closer to 1.7% to 2%, the markets didn’t show much reaction.

Looking at the core number which removes food and energy helps explain the ho-hum reception this report received.  The core rose just 0.2% in April and annualizes out YoY at 1.3%, still well below the targeted number.  Obviously fuel is the major contributor to the higher prices all of us are currently witnessing. This is borne out by the data as energy prices rose 2.2% in the aggregate with gasoline by itself adding 3.5%.  No other component evidenced major upside pressure.

To conclude from this report that inflation is not increasing fast enough to become a major problem misses a key point. Wages are growing at an even slower pace.  With headline prices up 3.1%, a pace of increase not seen in over two years, inflation adjusted wages fell 0.3% in April and are off 1.2% for the last year.  That pernicious reality puts a real squeeze on many things, especially family budgets, retail sales, home sales, and mortgage servicing.

April Consumer Sentiment

Tuesday, May 17th, 2011

After falling drastically in March, Consumer Sentiment made a slight comeback in April according to the monthly survey done by the University of Michigan.  The indicator’s downturn in March seems to have been associated with the turmoil in the Mid-East and the earthquake in Japan.  Prior to these significant events, this indicator was at 77.5, a post-recession high.  It now reads 69.8, just above March’s level of 67.5, and is lower year-over-year.

Leading the indicator higher was the expectations component.  This is consumer sentiment’s forward looking portion, so any leadership here is encouraging.  It grew 3.3 points to 61.2.  Consumers seemed to feel that most of the run up in gasoline prices was done, but about half of those surveyed consider their financial situation significantly worse because of higher food and fuel costs.  Americans were not expecting to see large gains in their financial future.  Just 7 percent of the households expected their finances to improve. Still, overall, Americans managed to indicate they feel the employment market is stabilizing.  The survey also shows Americans are anticipating near-term inflation will grow by 4.6 percent while just 11 percent expect their income to outpace inflation in the next 12 months.

Consumers lead our economy, so their attitude is paramount.  There has been some correlation between a buyer’s opinion and purchasing habits.  Unfortunately, consumers are not even feeling as good as they were this time of year in 2010, and they are nowhere near the sentiment levels seen before the last recession began.  Consumption will need to grow if this economy is to improve enough for consumers to feel good.  But wait, if consumers are not feeling so hot, they are less likely to consume. This is an awful cycle we seem to be in.  Let us hope this is one of those times when consumers say one thing and spend differently.

March Personal Income and Outlays

Monday, May 16th, 2011

Personal income grew 0.5 percent in the month of March according to the U.S. Department of Commerce. That represents a $67.0 billion earnings expansion over February. Since Americans tend to spend most of (and in some cases more than) their income, this indicator is important. Interestingly, income grew faster for the month, but the pace of consumption slowed a smidge after increasing for the previous three months.

Private wage and salary disbursements boosted income by $18.0 billion after growing $23.9 billion in February.  Government wage and salary grew by $1.2 billion following a decrease of $0.5 billion the month before.  Personal current taxes were $2.5 billion more for the month leaving Americans with an additional $64.4 billion in disposable personal income.  This additional tax revenue will help close the budget deficit as long as the government’s outlays do not increase faster than their tax collection.

Speaking of not spending more than you make, Americans did not spend all of their additional disposable income this month as personal outlay grew by $60.7 billion or 0.6 percent.  Year-over-year the Americans are spending 4.6 percent more.  This followed February’s outlay gain of $94.4 billion.  The country’s savings rate stayed steady at 5.5 percent and has grown 5.3 percent year-over-year.

Finally, the Federal Reserve’s favorite inflation gauge is contained in this report. The Personal Consumption Expenditures price index increased 0.4 percent in March after growing by 0.3 and 0.4 percent in the first two months of the year.  The Fed prefers to subtract food and energy from the gauge giving a “core” reading of 0.1 percent.  Year-over-year the core PCE price index has grown 0.9 percent.  This is well below the Federal Reserves’ target inflation rate and means they have room to continue their accommodating interest rates.  It may also be used as evidence for further quantitative easing should they feel more is necessary.

Roll Out the Barrel

Friday, May 13th, 2011

What exactly is a barrel of oil?  You can’t go buy one from Pep Boys.  The local filling station doesn’t sell them.  You can’t even go to a refinery and buy one.  It’s mostly just a yardstick to measure how big a tanker ship is or how much Americans consume on a daily basis.

When a refinery dumps all that oil into its maze of pipes and towers, the stuff goes through a process called cracking where different sized molecules pretty much get sorted out by applying heat and pressure.  What (we’re told) was once a bunch of dinosaurs or maybe primeval carboniferous forests gets broken down into different petroleum products which are easier to use than was the original goo.  One barrel of oil thus yields roughly 19.4 gallons of gasoline, 10.5 gallons of diesel or heating oil, just over 4 gallons of jet fuel, some propane, asphalt and road oil, petrochemical feedstocks to make things like plastics and medicine, and some other odds and ends.

Obviously these are all important things.  If your car’s gas tank holds about twenty gallons then you are using a barrel of oil each time you fill up.  Multiply that out by the driving population here and you can see why the demand is so overwhelming.  Given that the entire world is increasing its demand for the same products, all things considered, I guess it’s no surprise that gas is running over $4 a gallon.

What is a surprise, at least to me, was data released recently by the U.S. Department of Energy which said our exports of petroleum products in February exceeded purchases by 54,000 barrels a day.  The American Petroleum Institute agrees, saying we exported more refined products in this year’s first quarter, including gasoline and diesel, than we purchased.  Mexico, Brazil, and other Latin American countries were big beneficiaries.  We might have shipped it to other places where demand was heavy, like New York or L.A. for instance, but federal law requires that such fuels be shipped by U.S. vessels where labor costs end up making that trade too expensive.

First Quarter 2011 Productivity

Thursday, May 12th, 2011

However much money it takes to produce a single something is called its unit labor cost (ULC) by economists. For the first quarter of 2011 the ULC rose one full percent versus a one percent decline in 2010’s final quarter  This is considered bad news as it tends to be a notable harbinger of possible future inflation.  On the other hand, it was up in part because wages rose 2.6% annualized after increasing 1.9% in the fourth quarter.

Productivity measures how much gets produced relative to all the costs involved in doing so.  So long as productivity is expanding, profits are probably being made.  That’s a good thing for America’s economy.  Declining productivity is therefore a problem and something to be avoided if at all possible.  For the first quarter of 2011, non-farm business productivity rose 1.6% despite the increase in ULC.  Although still a positive, this marks a huge drop from the 2.9% gain seen in the last three months of 2010.  Annualized, the growth rate is definitely showing signs of slowing, now up at a 1.3% rate against the 2.0% annualized rate seen in Q4.

While an increase in income may feel good to the worker, it tends to make management reluctant to hire more folks when wage hikes come at the expense of productivity.  This hardly suggests we will see a meaningful improvement in unemployment for some time to come, to the ultimate detriment of our weak economic recovery.  It may be a long, hot–and slow–summer.

April 2011 Unemployment

Wednesday, May 11th, 2011

April employment according to the Department of Labor surged above expectations as 244,000 new non-farm payroll positions were added.  Also, March was upwardly revised to 221,000 (x +216K), while February saw a bump up to 235,000 (x 194K).  Huge numbers all around and well received by the equity markets.  Makes you wonder why the unemployment rate rose two-tenths to 9% and the underemployment rate traced a similar pace, reaching 15.7%.

Gains were seen across a broad swath of private sector jobs, both goods producing and services.  Manufacturing was up, construction was up, health care was up, and so forth.  The biggest decline seemed to be in government jobs, a fact no tea party enthusiast should miss.  Again, mostly good news.  The gain in the unemployment rate may itself possibly be interpreted favorably, as it suggests more folks who had quit looking for work are finding enough encouragement somewhere to resume their search.

They may be facing a rocky road.  The average workweek remained stuck at 34.3 hours while average hourly earnings, up just 0.1%, probably lagged consumer price hikes by a substantial amount, the six consecutive month that has happened.  For all the jobs gained since the recession ended almost two years ago, we have seen the total recoup just one in five of those lost.  We are recovering at a pace just one-third that seen in the last serious recession of the early eighties.  Amazingly, despite a growth in America’s population of some 30 million from early 2000, payrolls today are actually lower than they were then.  This probably isn’t the best time to ask for a raise.