Archive for January, 2012

December New Home Sales

Tuesday, January 31st, 2012

Government agencies released their December report on new home sales and it was a disappointment by almost any measure.  First, while consensus expectations were for 320,000 units to be sold, in fact just 307,000 sales were registered.  In turn this actually caused the available supply to rise just a tad to 6.1 months.  We still want to see supply decline in the hope that such action will cause prices to firm.  Thus the 0.1 months increase in available units reported, while slight, was a little bit of a downer.  Illustrating this knock-on effect we saw prices continue their decline with the median price in December down a huge 2.5% to $210,300.

Recently we have begun to see various ancillary reports suggesting a recovery in housing may be in its earliest stages but this report certainly provides no support to that view.  When lower prices and rock bottom mortgage rates cannot combine to lift sales we must retain a cautious wait and see attitude to the overall recovery of America’s economy.  Recent commentary from the Federal Reserve adds to our concerns as their most recent official release was full of qualifications and cautions.

Year-over-year the median for new home prices has now declined by 12.8% which is the worst level since the current recovery was declared to have begun.  However we have been seeing some signs of life in other indicators that we follow.  The existing home sales report which came out just a few days prior to this one demonstrated a different and much more positive result.  Further it represents a much bigger market than new construction.  Despite the negative tone the new home sales data evidences, we hope to continue seeing more positive data come available in the near future.

National Association for Business Economics

Monday, January 30th, 2012

The most recent survey to come from the National Association for Business Economics (NABE) had a more optimistic sound from those of recent quarters.  The real GDP growth rate for the next several quarters is expected to be over 2 percent.  When asked about prices, respondents tended to feel price stability will improve.  The one sour part of the report comes from employment expectations.  Companies are anticipating slower jobs growth as fewer expect to increase hiring in the next six months. While jobs have been a sticking point in our post recession recovery, the rosier outlook for other economic components is encouraging.

Profit margins are one significant area where companies are reporting positive developments.  Thirty percent have seen an expansion in the difference between sales and costs.  More than half felt margins remained the same and only fifteen percent reported they declined.  Here is the rub – those experiencing falling sales grew to 19 percent; this is the largest reading in recent quarters.  Recoveries tend to excite purchasing, but only 40 percent recorded an increase in sales.  Additional margins can only do so much before a pick-up in receipts is required to keep earnings growing.

One way for margins to grow is to increase the costs of goods and services.  This time around 78 percent of the companies kept prices the same.  But drilling further into this portion of the report signals a difference between the production and service sides of the economy.  Not one goods-producing company mentioned falling prices while 70 percent showed rising prices.  On a positive note, nobody expects their prices to rise or fall by more than 5 percent in the next three months.

NABE is an interesting indicator because it looks at both soft and hard data.  The soft data comes in the form of opinions about the future like the price expectations just mentioned or estimates for real GDP growth.  The hard data is derived from actual developments within the companies being surveyed such as sales and margins.  Overall, this release shows both soft and hard components improving.  With our recovery now over two-and-a-half years old and still feeling nothing but squishy, Atlas sees this as marginally encouraging.  (by C. Cox)

Getting Siri-ous

Friday, January 27th, 2012

I was reading a review of the latest in must-have technology recently when I came across an intriguing segment of a longer sentence.  In the vernacular of today, I’ll sample it for you.  “…connect a smartphone to a car of average intelligence….”  That’s when I knew I was in trouble.  First off, I really didn’t understand most of what I was reading what with all the references to Siri, Bluetooth, SD memory cards, an iPhone 4S and so forth.  The real epiphany came when I realized my car just might understand what I was reading, being no doubt one of the cleverest vehicles I know.

Technology is definitely moving civilization 3.0 and its advocates assure me our direction is forward.  Who am I to quibble?  But then I’m still working.  Technology can make our life easier.  It can also make the workplace more productive.  It does this in part by replacing the less productive human factor.  That, in turn, can lead toward more folks out of work.

Unemployment is of paramount importance during this election year possibly because the candidate who is most convincing when talking about it may just become president (after which it isn’t too likely he will be able to do anything about it).  The fly in the ointment is discovered when trying to define unemployment these days.  We have, of course, employed and unemployed workers.  Then there are the under-employed, marginally attached, discouraged, long-term unemployed, and those no longer counted as being in the labor pool whether voluntarily or not.

I’ll leave all the definitions up to the Bureau of Labor Statistics.  The election results may put a sharper but unofficial point on the data.  My concern presently is whether or not my car is already smarter than I.  Will we get to the point where it takes away my driver’s license?  Will my smartaleckphone start talking back to me?  Could I get fired by my own computer in a few more years for being too stupid?  If it does, I’ll write my congressman, who may just turn out to be the latest iPad42XS.

December Existing Home Sales

Thursday, January 26th, 2012

Existing home sales improved in the last three months of 2011 according to the National Association of Realtors.  December’s 5.0 percent improvement put the seasonally adjusted annual rate of sales at 4.61 million homes.  That pace of sales was enough to push the inventory of homes down to 6.2 months! This is the lowest reading since 2006.

All other things being equal, this type of report suggests an improving housing market.  The smaller supply of homes helped buttress the median price (ending a six month slide) as the price in the middle of the pack inched up 0.3 percent to $164,500.  Interest rates also helped stabilize prices. The national average commitment rate for a 30-year, conventional, fixed-rate mortgage ticked down to another record low of 3.96 percent from 3.99 percent in November.  Getting a loan is still proving difficult for many as one-third of all new contract negotiations ended in failure.  To put it in perspective, the failure rate was 9 percent the year before. Declined mortgage applications and failed underwriting continue to hold sales back.

After peaking in the middle of 2005, existing home sales had been easing.  The recent uptrend is encouraging, especially since it has not been subsidized by favorable tax benefits that created the temporary surge in 2009.  The market is beginning to heal on its own, but one should keep in mind the difference between healing and healed.  There is still the possibility of a large looming shadow inventory of homes coming to market.  This could be created by financial institutions that want to clean up their books by getting rid of non-performing loans.  If this materializes, downward pressure may be placed on home prices as the surge in supply comes to market.  While interest rates currently are low  will banks become more willing to lend loan or will cash deals need become an even larger part of the sales mix?  They currently make up 31 percent.  (by C. Cox)

December Consumer Prices

Wednesday, January 25th, 2012

The busiest shopping month of the year was kind to consumers from a price perspective according to the Bureau of Labor Statistics’ latest report on consumer inflation.  Overall, the index was unchanged from November, and the year-over-year change slipped to 3.0 percent from 3.4 percent the month before; this extends the declining year-over-year price trend that began after September’s peak.  Core inflation only managed to tick up 0.1 percent in the last 31 days of the year.  The core’s year-over-year number remained the same as in November.

When comparing calendar years, this was the highest rate of overall price increases since 2007 and is double the 1.5 percent change in 2010.  Food was the story of the headline number in 2011 as the food index grew 4.7 percent and all six of the grocery store food group indexes increased.  The core number also tallied the highest rate of change since 2007. It was up 2.2 percent after an historically low gain of 0.8 percent in 2010.

Inflation pressures seem to be moderating at this time.  The core rate was flat last month and the rate of change slowed in the last four months of the year after a quicker pace started 2011. There are many pressures and headwinds in the world economy that may mitigate future increases.  Of course, the other side of the argument is that there are several influences that will support a faster pace of price acceleration.  At Atlas, we believe the former explanation in the long run, but we will not deny the possibility of the latter in a shorter time frame.  (by C. Cox)

December Producer Prices

Tuesday, January 24th, 2012

Businesses’ costs of goods were mixed according to the December reading of Producer Prices put out by the Bureau of Labor Statistics.  The headline figure, which considers all items, fell 0.1 percent; the year-over-year change slowed to 4.8 percent from the previous reading of 5.7 percent, but this is still double the rate of 2010’s 2.4 percent change.  The core figure managed to surge 0.3 percent for the month causing the 12 month rate of change to advance from 2.9 percent to 3.0 in November.

Finished consumer and capital goods cost retailers more at the end of the year.  Consumer non-durable items like soap, footwear, alcoholic beverages, and pet food all managed to end the year at least 3.0 percent more expensive than they started.  Durable goods such as flatware, floor coverings, and mobile homes, joined the greater than 3.0 percent club of 2011.  Overall, the machinery and equipment businesses buy to improve their capital cost retailers of these wares about 2.3 percent more for the year.  The agriculture and construction subset of machinery and equipment increased by more than 3.0 percent; pumps and compressors prices came close to a 4.0 percent cost hike.  The production pipeline did show some slowing may be in the making.

The crude (think timber) and intermediate (now think paper or lumber) section of the report suggests there may be some relief on the horizon as each of them fell for the month.  They still managed substantial year-over-year increases, so upward cost concerns are warranted.  Financial markets are not fond of too much inflation, so the recent price slips in the earlier stages of production is welcome.  One month is not a trend, but a trend must start somewhere, right?  (by C. Cox)

December Industrial Production

Monday, January 23rd, 2012

The Federal Reserve reported America’s industrial production grew 0.4% in December after a 0.3% decline the prior month.  While overall this sector of our economy represents a relatively small portion of the total production generated by the U.S. (between 15 to 20% of the total) compared to services which make up the lion’s share, it is an important indicator in many respects.

There are three components to this report.  Mining production rose a scant 0.3% while output from utilities actually fell 2.7% as demand was trimmed by favorable weather for much of the month.  It was the third piece, manufacturing, which stood out to us.  This category makes up roughly three-fourths of the total.  With all the talk about sending American jobs overseas, it is good to see manufacturing rise 0.9% after the 0.4% November drop.  This sector was well balanced as well with the output of non-durable goods rising by 0.8% while durables jumped 0.9%.  Since this latter category is made up of items usually large, long-lasting, and often expensive, its growth reflects some optimism from American corporations.

Capacity utilization is another data point in this report we here at Atlas like to monitor.  It measures the extent to which American industry is using its manufacturing capability.  Compare it to gas mileage you get with your car.  If you drive slowly you use little gas but it takes forever to get somewhere.  If you go too fast you use up more gas than intended.  In between is a happy medium; you reach your destination in time with minimal wear and tear.  For capacity utilization that is around 80% to 85% of capacity, akin to driving between 55 and 65 mph on the highway.  The Fed reported December’s rate rose a bit to 78.1% from 77.8% in November.  This is also good news, showing our economy appears to be headed in the right direction.